Trading Options like Futures?

rrover · Dec 1, 2008

I've been day-trading futures for 2 years now. I'm looking to start trading longer term, daily charts. However, I'm not real comfortable with the size of the stops required in futures. I have never traded options outside of a simulator but I've spent quite a bit of time learning about them.

The reason I've never traded options live is because, to me, they seem to good to be true. So I'm very cautious but I'm not sure why. Let me describe how I would trade options and you tell me your thoughts on it.

Let's say, I think that somewhere between 1150 and 1100, the underlying price will reverse and go down to 1000. Price reaches 1100 and I buy an ATM 1100 Put option for 5 points. I can not lose more than $500 on this trade, had I placed this in the futures my stop would be $1000. I don't care if price exceeds 1150 before dropping to 1000, because I have 10, maybe 20 days until expiration for it to drop. Price reaches 1000, I sell my Put option.

I know, theta, delta... I'd make a percentage of what I could in the futures but my risk is much lower and I don't have to worry about setting a specific stop.

So what do you think? What am I missing? I am close or am I dreaming?

dagnyt · Dec 1, 2008

Quote from SDSMAN:

I know Price Headley rather well and he and Mcmillan are the only straight shooter Ihave met in the past 20 years.

You have not met very made people if those are your two picks for straight shooter.

Mark

dagnyt · Dec 1, 2008

Quote from rrover:

I buy an ATM 1100 Put option for 5 points. I can not lose more than $500 on this trade

What am I missing? I am close or am I dreaming?

1) The option you want to buy would cost far, far more than $500.

2) If you are able to time the markets - and have a <i>proven track record</i>, then you are not dreaming. Otherwise it's a pure gamble.

Mark

riskfreetrading · Dec 5, 2008

Quote from dagnyt:

You have not met very made people if those are your two picks for straight shooter.

Mark

maybe he did not include anyone born after those two guys. Which would explain it!

PS: I find the books of McMillan with little to no insight in them. The thing that seem to attract people is that book that looks like an encyclopedia. However, it is a book that shows that Larry does not have any imagination or little of it at best. The whole of what he wanted to say in there could be said is 10% the size of his book, and is information all over the place on the web for free.

forex-forex · Dec 5, 2008

I would trade the SPY options: http://finance.yahoo.com/q/op?s=SPY

ATM December 85 Puts are about $8.50 and 10% drop by expiry will bring them to about $8.50. Make it a 80/85 debt spread and you could make about $3.60

forex-forex
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Option Guru

forex-forex · Dec 5, 2008

Quote from SDSMAN:

Mcmillan wrote the first book on options and much of what you see quoted comes right from his materials

My post didn't come from some book. It's 100% based on my experience with trading futures and options.

forex-forex
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Trading Guru

anouka · Dec 10, 2008

Based on your experience what do you recommend better, futures or options? Iâm using a Core Options but it is only for Forex Options and maybe gold and silver, I am really thinking of diversifying because I feel it is much safer.

El OchoCinco · Dec 10, 2008

Quote from forex-forex:

I would trade the SPY options: http://finance.yahoo.com/q/op?s=SPY

ATM December 85 Puts are about $8.50 and 10% drop by expiry will bring them to about $8.50. Make it a 80/85 debt spread and you could make about $3.60

Those $85 puts are now worth $1.40. JAN ATM $90 Puts are $6.10 with 37 days to expiration. Not sure even at higher vols how you found ATM DEC $85 puts 14 days to expiration trading at $8.50. Have to get the quotes right before anything.

Reaver · Dec 10, 2008

Quote from optioncoach:

Those $85 puts are now worth $1.40. JAN ATM $90 Puts are $6.10 with 37 days to expiration. Not sure even at higher vols how you found ATM DEC $85 puts 14 days to expiration trading at $8.50. Have to get the quotes right before anything.

Good one Coach.

forex-forex · Dec 11, 2008

Quote from forex-forex:
I would trade the SPY options: http://finance.yahoo.com/q/op?s=SPY
ATM December 85 Puts are about $8.50 and 10% drop by expiry will bring them to about $8.50. Make it a 80/85 debt spread and you could make about $3.60

Quote from optioncrotch:
Those $85 puts are now worth $1.40. JAN ATM $90 Puts are $6.10 with 37 days to expiration. Not sure even at higher vols how you found ATM DEC $85 puts 14 days to expiration trading at $8.50. Have to get the quotes right before anything.

Quote from Reaver:
Good one Crotch.

Optioncrotch ...... My post was made before the market opened on December 05 when the SPY was about $83.00. SPY is now at $90.00 5 days later.

Reaver:.....optioncrotch misread my post and he replied 5 days too late, as usual.

forex-forex

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Option Guru