Why do you guys trade options?

Can use options to hedge CFD positions.
Giving full leverage benefits of CFD's - only insured with options!

Another beer from the bar thanks :cool:
 
Puts are really good way to go instead of shorting stock outright--SPG puts went from 1.50 to 8.40 in about 5 days -even if u used $2500 to buy puts -potential profit top to bottom about $12k :)

If you shorted the stock (if it was avaialble which is not always the case) you wouldve made $10/share --to make 12k you wouldve had to have 1200 shares or almost $120,000 -shorts work really well with puts cause of the inherent nature of fear-swift and furious. No loss of timevalue
 
Quote from GG1972:

Puts are really good way to go instead of shorting stock outright--SPG puts went from 1.50 to 8.40 in about 5 days -even if u used $2500 to buy puts -potential profit top to bottom about $12k :)

If you shorted the stock (if it was avaialble which is not always the case) you wouldve made $10/share --to make 12k you wouldve had to have 1200 shares or almost $120,000 -shorts work really well with puts cause of the inherent nature of fear-swift and furious. No loss of timevalue
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QFT.

I bought some puts on JNPR first thing this morning and already up $25/contract. I had wanted to buy them yesterday but other priorities kept me away from my computer all day. =(
 
Quote from Chronos.Phenomena:

OK

but it seems very hard to make a profit at all.. even to break even. Let's take an example:


Say call option for SPY with 118 strike costs $3. If I by one option, that's $300 out of my pocket.... then the market has to move to 121 so I can break even?

am I missing something here?
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As every option trader knows, there are a great many ways to make a directional bet with options. Here are some ways (I am using the last traded prices as of today (Wednesday) for Dec SPY options. SPY itself is at 118.60.

1. Buy the 118 call for about 2.68. If you hold until until expiration SPY will have to go to 1120.68 before you make money. But who says you have to hold until expiration? If SPY pops up 0.60 in two days the call will be worth about 2.93. Accept your two day 9% gain and get out.

2. Use a vertical spread. A 118/121 spread will cost you about 1.52. You make money if SPY is over 119.52 at expiration. You are limited to making "only" a 97% gain no matter how high SPY goes.

3. Further reduce your costs by adding to your 118/121 debit spread a 121/124 call credit spread, making a 118/121/124 call butterfly. This will cost you about 0.75. You will make money if SPY is between 118.75 and 123.25 at expiration, with the maximum profit (of 400%) if SPY is at 121. Unlike the vertical spread alone you will lose money if SPY goes too high, but no more than the initial 0.75.

4. Any position in between (2) and (3) can be created with a call condor. E.g., buy the 118/121 debit spread and sell the 122/125 credit spread, for about 0.95. Now you make money at expiration if SPY is between 118.95 and 124.05, with the maximum profit if SPY is between 121 and 122.

4. None of the above tactics require margin. If you are willing to use margin you could, for example, reduce your costs further with a ratio call spread -- buy one 118 call and sell two 121 calls, for a net cost of 0.36. Now you make money if SPY is between 118.36 and 123.64, but your losses can be unbounded if SPY flies past that point.

5. Still pining for futures? Create one with a synthetic long. Buy the 118 call and sell the 118 put. You can do this for free (aside from the margin requirement) as the price of the put is about equal to the price of the call. "Wait," sez you, "with SPY at 118.60 shouldn't the net cost be 0.60?" Well, SPY pays a 0.57 dividend, and that makes the puts more expensive and the calls cheaper, so they work out to having about the same value. You have a margin requirement and potentially unbounded losses (as with a future) but have no time decay and a delta of 1, just like for a future. If SPY goes up enough to overcome the bid/ask spreads you'll make money. But if it doesn't, you lose.
 
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Yep, yep. Listen to that  | man. Those that don't like options just don't understand how they work and what all can be accomplished with them. This is just one good example.
 
Quote from rew:

I can make money betting where an asset price *won't* go, which is difficult to do with stocks or futures.
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Excellent point! You can bet that nothing will happen and collect premium.
 
Quote from JJacksET4:

Simply that options give you options - you mention one SPY call example and act like that shows that all options are bad. You SIMPLY CANNOT (sorry for the CAPS, but for emphasis) do some things with stocks only that options allow you to do. Here are some examples of why people may trade options:

1. You "know" stock will make a large move but you don't know if it will be up or down. You can buy a straddle - there is no way to duplicate that with stock only.

2. You "know" a stock won't hit a certain level - i.e. stock at 85 - you feel it could go up, but won't go over 90 - you could sell a 90/100 call credit spread - collect maybe $200 and if you are right, even if the stock moves against someone who shorted it and goes to $89, you keep the entire $200. So, again this really can't be done without options, as the person who shorts 100 shares in the example losses $400, but the spread seller nets $200. Note this can often be played on the other side as well, selling bullish put credit spreads.

3. You feel a stock/index won't move much - you could sell a straddle or long iron condor. If index remains unchanged after given time, you get to keep the credit. Again, no way to do this with stocks only. Calendar spreads can also work sometimes if a stock doesn't move much (or butterflies for that matter).

4. I do personally feel the leverage with options is much better then using stock margin, and is much, much safer. This is IMO.

To help you understand the power of options more maybe, consider your 118 SPY call in these cases instead of just a small move - what if SPY went to $128 or even $138 - now compare the profit % to buying SPY even on margin. Also, consider spending $300 and then SPY falls to say $100 - if you bought 100 shares at $118, the losses are $1800 - the one call will only cause a loss of $300.

I think there is very little limit to what options can do, but you need to decide if you want to use Theta (time decay) or Delta (price moves) or vega (Volatility changes) to your advantage and set up appropriate trades.

JJacksET4
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Another excellent post.
 
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