What is IV?

[BlueWaterSailor]

In my limited knowledge what I understand is this, the higher the DTE, higher is the chance of underlying moving. Hence, MMs pricing in higher IV in longer DTE options.

If MMs had the kind of control over the market that this implies, we could all make a fortune doing that instead of trading.

The market - i.e., traders - determines the prices at which a given instrument will trade. If the "majority opinion" is that a 30-day 100 call in a $100 stock is worth $5 and someone offers it for $4, that trade will be gone instantly. If someone else bids $6 for it, ditto. If there's enough liquidity - i.e., buyers and sellers - this will continue until the B/A spread around the "fair" price is down to 0.01, and the only outstanding bids[offers] are too high[low] for anyone to be interested in them.

That combo of "fair" price, tenor, and strike has an IV associated with it - about 44% for the above - and it's not something that market makers "priced in".

 

[taowave]

A bit more digestable..Bennets book is decent too

option skewPIMCO_FeaturedSolution_Goldberg_EquitySkew_June2015.pdf

https://www.globalvolatilitysummit....s-And-What-They-Tell-Us-ISE-NationsShares.pdf

 

[taowave]

For day trading with no overnight risk,and trading a single option, I would argue(strongly) that the highest Delta is the way to go...Ill take Delta/Theta over Gamma/Theta

IMHO,it comes down to the second part of the question i asked .Are you more inclined to be a backspreader or a ratio writer...Simply put,will you employ leverage and how aggressively

If you are position sizing and willing to risk X dollars,the real question is do you buy 1 delta 1 option vs 2 delta .50 options vs 3 delta .33 options ,etc...

Or do you simply take X dollars and buy as much of the option strike you are inclined to..

Reardless,if you are day trading 1 lots,you buy the highest Delta..

That's easy to answer.
For directional trading you want to use the option that provides the highest possible gamma per unit of theta. IV is negligible in very short term options, they are gamma plays for the most part.

As short term options IV is heavily skewed, you will find that these options are almost always the ATMs.

 

[ondafringe]

For day trading with no overnight risk,and trading a single option, I would argue(strongly) that the highest Delta is the way to go...Ill take Delta/Theta over Gamma/Theta

IMHO,it comes down to the second part of the question i asked .Are you more inclined to be a backspreader or a ratio writer...Simply put,will you employ leverage and how aggressively

If you are position sizing and willing to risk X dollars,the real question is do you buy 1 delta 1 option vs 2 delta .50 options vs 3 delta .33 options ,etc...

Or do you simply take X dollars and buy as much of the option strike you are inclined to..

Reardless,if you are day trading 1 lots,you buy the highest Delta..

If you are bullish, and looking at where the SPY Wednesday options are now, that would mean buying the 435 call's high delta, instead of the 442 call's high gamma, and paying over 5x the premium, so one 435 call vs five 442 calls?

 

[newwurldmn]

I knew I could count on you

So given the choice,if bid offer spread was minimal,woukd you
Daytrade a 1 Delta option,.75,.5 or .25,which single option would you trade???

And if I said you can trade more than 1 option with X dollars to risk,would you trade

1 Delta 1 option
2 Delta .5 options
4 Delta .25 options

Or would you not look at Delta and simply look at equal dollars and load up,maybe with a stop,maybe not

I would trade the option that maximizes my gain based on my view. That would be the trade off of delta (pnl earlier in the stock movement) vs convexity in

For day trading with no overnight risk,and trading a single option, I would argue(strongly) that the highest Delta is the way to go...Ill take Delta/Theta over Gamma/Theta

IMHO,it comes down to the second part of the question i asked .Are you more inclined to be a backspreader or a ratio writer...Simply put,will you employ leverage and how aggressively

If you are position sizing and willing to risk X dollars,the real question is do you buy 1 delta 1 option vs 2 delta .50 options vs 3 delta .33 options ,etc...

Or do you simply take X dollars and buy as much of the option strike you are inclined to..

Reardless,if you are day trading 1 lots,you buy the highest Delta..

I would trade the stock.

otherwise it’s too general of a question. For 1 month options it won’t matter much though bud offer will be greater with lower delta options. for 0 day options gamma/theta becomes the primary driver.

 

[taowave]

For daytrading I would buy stock,but I am backtesting it right now..When I go back 15 years ,my results seem funky

You are asking the 1,000,000 question,and thats what I am trying to backtest.

Keep in mind,maybe you buy 2 .50 ATM options vs the deeps(delta flat) ..Maybe Dollar even(5-1) is too aggressive...

So far,I dont see any quantifiable statistical edge to options(1-5 days),and stops do not appear to help..
Even if I lever 5-1,im not seeing edge I would act on...Im going over the numbers to confirm

 

[taowave]

Day trading a singe option,I go with stock vs high delta vs lower delta..
Thats a "gimmee"... Totally agree you have to look at maximising your view...

Im going down the rabbit hole with SPX Trader,and backtesting buying ATM options with 1 to 5 day holds,with and without stops/profit targets.

Maybe I am screwing up,but it appears the max drawdowns of loading up on ATM's prohibit enough leverage to outperform a simple Buy and Hold...

Im double checking with Matt/Orats to confirm

I would trade the option that maximizes my gain based on my view. That would be the trade off of delta (pnl earlier in the stock movement) vs convexity in


I would trade the stock.

otherwise it’s too general of a question. For 1 month options it won’t matter much though bud offer will be greater with lower delta options. for 0 day options gamma/theta becomes the primary driver.

 

[SPX Options Trader]

Day trading a singe option

Im going down the rabbit hole with SPX Trader,and backtesting buying ATM options with 1 to 5 day holds

You absolutely need precise timing. Intra-day.
The ability to realize to cut your losers in real time, and have the foresight to ride the winners, to maximize them.
Holding for 1-5 days, and overnight, will absolutely kill your profits, averages. You don't want gaps, gaping, and wildcard overnight holding periods.

It's harder than it sounds to trade, assume, time, bet, on the daily S&P chart movement. Everyday. To capture those two ideal points of when to buy and sell.
A lot of people would kill to have this skill, knowledge, process, expectations, foresight, approach and understanding.

 

[ondafringe]

You absolutely need precise timing. Intra-day.
The ability to realize to cut your losers in real time, and have the foresight to ride the winners, to maximize them.
Holding for 1-5 days, and overnight, will absolutely kill your profits, averages. You don't want gaps, gaping, and wildcard overnight holding periods.

It's harder than it sounds to trade, assume, time, bet, on the daily S&P chart movement. Everyday. To capture those two ideal points of when to buy and sell.
A lot of people would kill to have this skill, knowledge, process, expectations, foresight, approach and understanding.

Do you only trade 0-DTE... Or do you also trade 1-DTE, but don't hold overnight?

 

[SPX Options Trader]

Do you only trade 0-DTE... Or do you also trade 1-DTE, but don't hold overnight?

I never hold overnight. The thought of that makes me absolutely cringe, you lose control overnight. That's like letting people borrow your car overnight. I'm a precision player, who watches his prey move in the day.

I trade the closest to expiration. These are the most, easily, volatile. They have the widest ranges, meaning a large window of potential opportunity for profit for the wise, patient, sharpshooter trader.