Trouble Choosing Between Futures and Options

[gaussian]

Hi one newbie options questions,

You have 500+ posts and you don't understand that threadjacking isn't cool. Nice.

I'll address the why not both below for you guys:

Yeah! Learn both! I have a scale, at one end of which is 100% index options, and the other is 100% index future contracts. Big trend? Small vol? Futures. Trend shake-outs? Volatility? Options.

Keep trading options, start trading futures. Why do you want to pick one or the other?

I would highly recommend you learn both

The whole reason I want to stick to one for now over the other is strictly just to get better. It's very time consuming (I work full time, many times I travel for work) to mentally switch contexts from futures to options. I'd prefer to get completely familiar with one instrument. I am most familiar with options. I have been trading them for around 2 years. Additionally my risk capital is around 12,000 at the moment. I'm in my late 20s and between balancing mortgage, retirement, etc that's all I've scraped together as pitiful as it is.

What you're looking for is position insurance.

This is why I like options a lot. Its very much a job of an insurance salesman, and I'm pretty decent at probabilities. I just feel like I have to take on a lot more trades in options than I do in futures.


It would seem that the answer is why not both...just what I was afraid of. I suppose I will have to do some soul searching. Options on futures are a possibility and SPAN margin is nice - however margins in general on futures options tend to be nuts in today's volatility.

 

[qlai]

I suppose I will have to do some soul searching.

I trade/understand neither, but shouldn't you first define for yourself what it is you would like to achieve? Once you are clear what the long/mid term goal is, you may get more relevant answers I think.

 

[Overnight]

If you are really adamant about learning only one of the two, and since your history seems to be options, then do this...

Try some e-micro equities for a while, see how you do. If you like it, go to minis. If you find the futures are too uncomfortable for you, then go back to what you know...options.

The only thing I know regarding the difficulty between the two is futures are simpler in construction.

If you find you like both a lot, you could try FOPs. Seems that someone who knows options, but then learns futures, would have a good advantage on the FOP.

 

[ETJ]

Linear payoff for futures - non-linear for options and futures options.
The rest is pretty much as the other posters have pointed out and the devil is in the details of the trade. I can create a future with options synthetically and I can try to replication a delta hedge with futures through dynamic hedging, but that breaks down if you underlying gaps.
It would be a good idea to learn both as they can be combined for unique outcomes.

 

[nooby_mcnoob]

between balancing mortgage, retirement, etc that's all I've scraped together as pitiful as it is.

That's not pitiful, unless you're earning mid six figures or higher.

Paper trade one or the other?

 

[bone]

I'm generally an options trader. I have lots of books on options, and in general I enjoy trading options. However, I've recently spent more time in futures and I quite like them as well. Both are fun to me. So much fun in fact I have analysis paralysis and I need some external input. I can't do both well. Right now I'm a swing trader because I don't have enough money to do it full time. I also only have enough money to do one really well - I can't dabble in each.

Options

Pros

• Many setups because of how many degrees of freedom a contract has
• thousands of tradeable underlyings, can also trade on futures (though I don't do that)
• Not favorable tax status unless trading indexes (SPX, RUT, etc)

Cons

• Margin is actually margin
• Time dependent
  
• Often times margin is excessive on short positions
• Stuck trading the US cycle (I'm in the US) and closing options trades can't be done after hours

Futures

Pros

• Trading involves interesting things like commodities, financial futures, index futures, etc. There are always setups.
• Favorable tax status
• Margin is actually sort of escrow/payment-in-good-faith
• 24 hour market (more or less)

Cons

• Sometimes very large margin but intraday is usually tolerable.
  
• 100% directional (for example, there's no short vega/long theta style trades).

I think each has their merits and both are in general pretty liquid. I can't decide which is better for me, the retail, though.

Can anyone help me resolve this dilemma?

Either way you are going to require a trading system with a durable edge and exceptional position management.

Personally I think you’re asking the wrong question - which instrument provides the best returns over a protracted period of time? Which instrument makes you more comfortable holding? Which instrument gives you the most confidence? Which instrument more effectively allows you to express your trade ideas in the marketplace?

I think it’s a question best answered by yourself. I wish you good fortune!

 

[Pekelo]

I still say, why not both? Options are boring and a waiting game most of the time. Once you have the position on, you still can trade futures on a smaller time frame, so your time is better spent.

 

[ironchef]

Linear payoff for futures - non-linear for options and futures options.

Why I trade options: Convexity.

 

[tenny1886]

You have 500+ posts and you don't understand that threadjacking isn't cool. Nice.

I'll address the why not both below for you guys:







The whole reason I want to stick to one for now over the other is strictly just to get better. It's very time consuming (I work full time, many times I travel for work) to mentally switch contexts from futures to options. I'd prefer to get completely familiar with one instrument. I am most familiar with options. I have been trading them for around 2 years. Additionally my risk capital is around 12,000 at the moment. I'm in my late 20s and between balancing mortgage, retirement, etc that's all I've scraped together as pitiful as it is.



This is why I like options a lot. Its very much a job of an insurance salesman, and I'm pretty decent at probabilities. I just feel like I have to take on a lot more trades in options than I do in futures.


It would seem that the answer is why not both...just what I was afraid of. I suppose I will have to do some soul searching. Options on futures are a possibility and SPAN margin is nice - however margins in general on futures options tend to be nuts in today's volatility.

sorry bro, i was just asking a question related to options, not sure if it rubbed you the wrong way. anyways good luck.

 

[tommcginnis]

Gaussian -- there's a lot to unpack there, but here's two thoughts:
Options first, then futures.
There is so much more to learn with options, and you've already absorbed 3/4s of it -- to switch to futures now would leave a lot of stuff dangling. Think of futures as DEEP ITM options -- get that 'synthetic long' picture down pat, and keep on.
(Put slightly different,...)
IMO, futures take lesser numbers of skills than options, but nearly all of those skills transfer to option trading. For options, many more skills are required, but fewer of those skills transfer to futures. So, if you've already absorbed 3/4s of optioneering, complete that task: you'll find futures to be a snap.

Secondly, how are you trading them? Pekelo mentioned options being *boring*. OMG. But perhaps that's compared to how he's trading futures! For me, options are a nose-to-screen agenda these days, while end-of-day triggered futures (3-7 day holds, mostly) are what really allow me to sleep soundly. Your intended trading habits should very much be considered. (I started out as a tick scalper, 5-minutes was long-in-the-tooth, and an hour was eternity. But that very much schooled me on market mechanics. DOM de-DOM DOM!)