What am I missing?
- Thread starter jimmyjazz
- Start date
sonoma,
I'm not trying to make it difficult for you to answer what you consider "Good ROI" is. So forget daytrade. Please tell me your experience with 1-2 week trades then. Or, whatever trade duration you want to explain "Good ROI". For instance, is it normal for you to make 30-50% ROI with Verticals or more like 10-30% ROI, what? Thanks.
jimmyjazz,
I came from stock trading to options and do directional trades also. Here's the problem - since stocks do not expire, people too often do not want to miss the movement and get in early. Then when they realize they were too early, they cost average. No problem - it makes money. But this strategy never works with options. Options expire. Plus, the religious cult of the Church of the Greeks brainwash everyone with their retard math beliefs to confuse directional trades, since they make money selling you their Calls and Puts. Ignore them. Ignore their dogma. Think for yourself. Options are cheap. And, options are powerful - hurray! You just have to force yourself to wait for the movement to begin, pure and simple, that's it. DO NOT get in early. The result being, ATM options easily go ITM. And since "you force yourself to wait", then you can buy options that expire in 2-1/2 weeks. Of course, the Church of the Greeks will chant hell-fire-and-brimstone to chastise this logic - some scary stuff. So, to avoid being brainwashed by these zealots, be sure to plug-in a 0.0001 rate and 0.0001 IV into your Black-Scholes calculator to give you the guaranteed money (aka. intrinsic value). Then, if the movement happens quicker than you expected, you will not only get the guaranteed money, but you will also get a bonus check (ie. the remaining premium). The key is to never think you will get that bonus check. Matter of fact, if you even attempt to calculate the "possibilities" of a bonus check, then dip your hand in holy water, touch your forehead, stomach, and each shoulder, and kiss your ass goodbye, it's welcome to the Church of the Greeks. Is that what you want? No, of course not. You just want to make money using less money, right? Me too. And, DITM is not less money, unless you are are an investor. 2-1/2 week ATM options are perfect. The ROI's are between 50-150% when everything goes well. And when you know you got in too early (you always know), then you will only lose 30-50% if you grab your money to re-buy a fresh 2-1/2 week (those are the ones that make the most later though).
Good Luck.
I'm not trying to make it difficult for you to answer what you consider "Good ROI" is. So forget daytrade. Please tell me your experience with 1-2 week trades then. Or, whatever trade duration you want to explain "Good ROI". For instance, is it normal for you to make 30-50% ROI with Verticals or more like 10-30% ROI, what? Thanks.
jimmyjazz,
I came from stock trading to options and do directional trades also. Here's the problem - since stocks do not expire, people too often do not want to miss the movement and get in early. Then when they realize they were too early, they cost average. No problem - it makes money. But this strategy never works with options. Options expire. Plus, the religious cult of the Church of the Greeks brainwash everyone with their retard math beliefs to confuse directional trades, since they make money selling you their Calls and Puts. Ignore them. Ignore their dogma. Think for yourself. Options are cheap. And, options are powerful - hurray! You just have to force yourself to wait for the movement to begin, pure and simple, that's it. DO NOT get in early. The result being, ATM options easily go ITM. And since "you force yourself to wait", then you can buy options that expire in 2-1/2 weeks. Of course, the Church of the Greeks will chant hell-fire-and-brimstone to chastise this logic - some scary stuff. So, to avoid being brainwashed by these zealots, be sure to plug-in a 0.0001 rate and 0.0001 IV into your Black-Scholes calculator to give you the guaranteed money (aka. intrinsic value). Then, if the movement happens quicker than you expected, you will not only get the guaranteed money, but you will also get a bonus check (ie. the remaining premium). The key is to never think you will get that bonus check. Matter of fact, if you even attempt to calculate the "possibilities" of a bonus check, then dip your hand in holy water, touch your forehead, stomach, and each shoulder, and kiss your ass goodbye, it's welcome to the Church of the Greeks. Is that what you want? No, of course not. You just want to make money using less money, right? Me too. And, DITM is not less money, unless you are are an investor. 2-1/2 week ATM options are perfect. The ROI's are between 50-150% when everything goes well. And when you know you got in too early (you always know), then you will only lose 30-50% if you grab your money to re-buy a fresh 2-1/2 week (those are the ones that make the most later though).
Good Luck.
I don't enter trades early. I enter them when they trigger -- it's basically a relative strength trade.
That said, if I'm happy with how I do going long the underlying and then exiting when I get my exit trigger, I should probably be aiming for the same delta in options. That means almost 2X the ATM calls as DITM calls, right? So I'm trying to weigh those two options (pun intended).
That said, if I'm happy with how I do going long the underlying and then exiting when I get my exit trigger, I should probably be aiming for the same delta in options. That means almost 2X the ATM calls as DITM calls, right? So I'm trying to weigh those two options (pun intended).
You can buy twice, even thrice, as many ATM as you can DITM.
Let me try to be a value add here. I have seen many option traders over the years (I was at an options prop firm for 8 years after all) and honestly, the reason most guys lost money trading long premium directionally is not because of the greeks, it's because they were bad traders. I'm being serious here. I saw their trades OK, I saw what they were "trying" to do. And the truth is, they simply were not good directional traders. See, here's the thing with options, both buying and selling. People have a tendency to make a call on some stock, say IBM. I think IBM is going higher. Since I'm long the calls and not the stock, I throw risk management out the window. Say I put the trade on when IBM is at 200. Now if I was buying the stock, I might put a 190 stop on (5%). That's reasonable. But with the calls, guys think, I don't need to worry about a stop. So the stock goes to 190, 185, 180, 175 and they either hold or buy more. This is analogous to a premium seller who sells juice, has it go in his face and then rolls up and out to avoid taking a loss.
I swear to God I don't know what it is with options guys and not taking losses. But they are the worst. So I hear these guys say all the time, I bought such and such calls and lost money even though I was right and then they blame the greeks. It's NOT the greeks and your call was NOT right. Just because the stock "eventually" went up does not make you right. I go nuts when I hear this shit. Just admit it, you were WRONG! You bought an option on stock XYZ when it was a 100 thinking it was going to go higher NOW. It didn't, it went down, sideway, up and back down and finished flat over a one month period let's say and then they get exited about the damn greeks.
Look, trading is done on the margin. Not margin as in buying power, but margin as in marginal return. An economic concept. In other words, details matter, numbers matter, time matters. In the business world they call this logistics. People study this stuff in school dealing with supply chain management. Time matters. Price matters.
if you get in stock XYZ at 100 and it doesn't go anywhere for a month and then goes up, guess what. You were WRONG! Anyone, I mean anyone can be right if given enough time. Without the time variable everyone on ET is a paper billionaire. Time is what makes trading hard. It's the variable that has to be "optimized". Get the time wrong and chances are, you have yourself a loser.
So my experience has shown me that most guys who play around with directional option positions are not really "good directional" traders who are getting hosed by the greeks, they actually are bad traders. This is just my experience.
I swear to God I don't know what it is with options guys and not taking losses. But they are the worst. So I hear these guys say all the time, I bought such and such calls and lost money even though I was right and then they blame the greeks. It's NOT the greeks and your call was NOT right. Just because the stock "eventually" went up does not make you right. I go nuts when I hear this shit. Just admit it, you were WRONG! You bought an option on stock XYZ when it was a 100 thinking it was going to go higher NOW. It didn't, it went down, sideway, up and back down and finished flat over a one month period let's say and then they get exited about the damn greeks.
Look, trading is done on the margin. Not margin as in buying power, but margin as in marginal return. An economic concept. In other words, details matter, numbers matter, time matters. In the business world they call this logistics. People study this stuff in school dealing with supply chain management. Time matters. Price matters.
if you get in stock XYZ at 100 and it doesn't go anywhere for a month and then goes up, guess what. You were WRONG! Anyone, I mean anyone can be right if given enough time. Without the time variable everyone on ET is a paper billionaire. Time is what makes trading hard. It's the variable that has to be "optimized". Get the time wrong and chances are, you have yourself a loser.
So my experience has shown me that most guys who play around with directional option positions are not really "good directional" traders who are getting hosed by the greeks, they actually are bad traders. This is just my experience.
Well, my reported results going long the underlying are honest-to-God real life results. So, I think I'm doing OK. I'm sure others are killing it, but I'm happy with those results, and moreover, I understand the system.
I'd always like to learn more, though, and thus I'd like to understand how to trade the same strategy with options, if possible. Yeah, I'd love more reward for the same risk, but that might not be possible. And, I'm completely sure that shifting my strategy from long stock to long calls, bull spreads, etc. is actually CHANGING the strategy. But I still want to know how it is doing so and what the tradeoffs are.
I'd always like to learn more, though, and thus I'd like to understand how to trade the same strategy with options, if possible. Yeah, I'd love more reward for the same risk, but that might not be possible. And, I'm completely sure that shifting my strategy from long stock to long calls, bull spreads, etc. is actually CHANGING the strategy. But I still want to know how it is doing so and what the tradeoffs are.
With options you have to optimize time. You "should" be optimizing time with shares as well, but most people don't. As I said before, we trade on the margin. So you have to get these things "right". Most guys make a call, say they want to short TSLA. They obviously are wrong, in other words, they may eventually be right on price but they definitely are wrong now on time. Well, they ignore this and keep holding. This is a trait of a bad trader. Of course eventually their option will expire and TSLA will tank and they will come on here and say, I told you so. But they got the trade wrong. Price is irrelevant if you don't optimize time.
But I don't think I'm in general far off on the timing of my triggers. Where I'm having problems is in performance using ATM or OTM calls. Earlier people indicated that just shifting to DITM calls would probably solve a lot of my issues, and indeed, it is looking that way (I average a new trade every day, so I've placed a few since starting this thread). But, it's a small sample.
Perhaps you're saying timing is even MORE sensitive with options; i.e., what is "good enough" trading the underlying is possibly unacceptable with options? Obviously, I have expiry to worry about, but I never really considered that timing could be hurting me more. I get "time decay", so I'm not a complete rube, but I'm struggling to put my finger on EXACTLY why I'm getting more scatter in my results.
As always, I really appreciate the patient hand-holding!
Perhaps you're saying timing is even MORE sensitive with options; i.e., what is "good enough" trading the underlying is possibly unacceptable with options? Obviously, I have expiry to worry about, but I never really considered that timing could be hurting me more. I get "time decay", so I'm not a complete rube, but I'm struggling to put my finger on EXACTLY why I'm getting more scatter in my results.
As always, I really appreciate the patient hand-holding!
I bet most all swing traders have disected the parameters for each day of their strategy such as
MAE , %profitable, avg day gain%, expectancy etc...
For me, if i bought calls then i would avoid day 1 of one of my strategies because the MAE
Is too high and %profitable too low. (Good avg gain % per trade as day1)
Day two might be the best to buy calls as it has a higher %profitable and low MAE and
enough average gain % per trade to overcome the time and volatility loss of the ATM a couple/few weeks out.
Eliminating day1 from the strategy might be best if calls were to be bought, a seperate strategy.
But as a home gamer how to figure out how to order without being present at the computer? And, the stock strategy applies to a universe of stocks but option liquidity sucks in even a lot of the SP100 , ATM.
I am rethinking occaisonal use of DITM calls.
I have trashed some tests/strats where the avg trade gain % was less than .25% over a few/several days holding on the most liquid stocks. DITM calls as a proxy for stock would make these strats viable. As i remember though liquidity
in the 90 delta area is always poor unless AAPL or SPY .
Good thread.
MAE , %profitable, avg day gain%, expectancy etc...
For me, if i bought calls then i would avoid day 1 of one of my strategies because the MAE
Is too high and %profitable too low. (Good avg gain % per trade as day1)
Day two might be the best to buy calls as it has a higher %profitable and low MAE and
enough average gain % per trade to overcome the time and volatility loss of the ATM a couple/few weeks out.
Eliminating day1 from the strategy might be best if calls were to be bought, a seperate strategy.
But as a home gamer how to figure out how to order without being present at the computer? And, the stock strategy applies to a universe of stocks but option liquidity sucks in even a lot of the SP100 , ATM.
I am rethinking occaisonal use of DITM calls.
I have trashed some tests/strats where the avg trade gain % was less than .25% over a few/several days holding on the most liquid stocks. DITM calls as a proxy for stock would make these strats viable. As i remember though liquidity
in the 90 delta area is always poor unless AAPL or SPY .
Good thread.
I may have said this a hundred different ways:
Measure the $1 percentage change in the option, then compute the implied vol delta. From there the percentage change in the closest AtM call option will tell you how many contracts to buy to obtain the "good roi" target from that "desired" leverage ratio. You don't necessarily have to buy 10 contracts to get a 1000 nem synthetic return using ATM or close otm options.
No! This is not in any options book!
Measure the $1 percentage change in the option, then compute the implied vol delta. From there the percentage change in the closest AtM call option will tell you how many contracts to buy to obtain the "good roi" target from that "desired" leverage ratio. You don't necessarily have to buy 10 contracts to get a 1000 nem synthetic return using ATM or close otm options.
No! This is not in any options book!