use Options instead of Stops

N

NoEmotions

I am interested in knowing how options can be used instead of stops, so that if market goes in my direction I do not get stopped out and if it breaks against me then I can benefit from option protection.

I trade at key points and have small stoploss( 3 points )
1) I get stopped out and NQ then rallies 5 to 10 or more points in my trade directions.
2) NQ just breaksdown from my entry around 5 to 10 or more points.

I know the basic , when your long position buy PUT options , quantity to buy PUT's = Num# futures contracts divide by delta.
and vice versa.

1) Is it advisable while day trading eminis say NQ.
does anybody do it ?

2) Is it advisable for swing trading say 2 to 10 day swings. ETF or stocks ?

I read an article in active trader for a long term future trade and want to know if the same concept is feasible in shorter time frames.

Thanks,
 
Check the quotes on the futures options -- usually a big bid/ask spread. Also look at some historical data -- once they go in the money their sizable premium disappears.
 
Thanks for the reply

I checked the NQ futues options, historic data for today and it looks like it does not have any volume.
But QQQQ oprions seems to have tight spread and good volume.

QQQQ looks better than NQ

Does anybody use this kinda method or am I wasting time digging into this ?

experts advice....
 
Never thought of something like that for day-trading. Seems like you'd have to be very timely in all your planning since you can't do it all from your futures dom.

Having traded options in the past, I think this may be difficult to do successfully in a day trading environment. A swing trading environment way work though. Maybe. :confused:
 
Speaking to ES options you can often get a fill between the bid ask as liquidity spills over from other markets so the spread is smaller than it appears.

Using a option as a stop loss is really trading on the assumption that the market will always retrace itself. While this is often true you must also take into account that trend also persist.

Here is an idea for the sake of argument

You could try playing the morning breakout by purchasing a straddle or a strangle late in the previous trading day, selling the winning option at a rate determined by volatility analysis and looking for a pullback to buy a future to offset you "losing" long option. This should leave you on the same side as the short term trend.
 
I use options on well known momo movers for a few days swing trade - just don't buy more option contracts than you are ready to loose (all the money you buy them with!) - if you keep the risk small the payoff is nice and prevents you from getting stopped out on some of the wild movers. Also, I don't buy on friday to hold over the weekend.

Only buy when your fav momo has dropped! Sell on the way up - don't try for the top when selling options.
Opposite of your instinct but more profitable as if you watch options with the first hint of a uptick the spread is not in your favor (or downtick for that matter)
(yep - you need to pick direction & take profits)

I also don't trade any bio/pharm types unless they have options - was too painful with the inevitable drop that will happen at some point. Limits losses, I start those out small and take profits quick - then use only profits to buy more options.

Commissions are higher so obviously this'll be only a few selections - a small portion of the account for options. (less=more for me anyway).

Couple of times a week I wake up to a grand in profits to be sold in the first few minutes of trading (after options open - they delay a little bit after stocks - pick one and watch it on the opening).
 
> I know the basic , when your long position buy PUT options , quantity to buy PUT's = Num# futures contracts divide by delta. and vice versa. <

Much to your broker's delight, you're just creating a synthetic call here.

Why not trade long calls/puts outright, choose strikes based on the downside you want to tolerate.
 
Quote from erlewine:

> I know the basic , when your long position buy PUT options , quantity to buy PUT's = Num# futures contracts divide by delta. and vice versa. <

Much to your broker's delight, you're just creating a synthetic call here.

Why not trade long calls/puts outright, choose strikes based on the downside you want to tolerate.
More...

Actually, it's more like a straddle, since you are buying two puts for every one contract you are long (ie ATM, delta=0.5).

I have looked into this method and even tried it once, more as a method to hedge my position if the futures exchange went down. The payoff can be positive in both directions if there is a big move within a short time frame. Otherwise Theta will eat your profits. Between Theta and the Bid/Ask spread slippage I don't think its viable as a stop loss alternative for short term trading with small profit targets.
 
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