Why do you trade options?

Quote from aeliodon:

I'm mostly a futures trader primarily because I really don't have an account big enough to buy 100 shares in like 10-20 companies that would comprise a very well diversified portfolio - although that's how I eventually want to trade - risking a little on each position in a portfolio with a lot of positions.
I've always heard of people saying options were riskier and I thought of options as risker because of the added leverage, thinner markets, bigger spreads, eroding premiums, plus commissions.
But I'm warming up to options. I think the risks can be worth it if it enables me to build a diversified portfolio which can reduce risk. I'd only consider simple buying call/put strategy as all the other more advanced options strategies befuddle me.
Am I entering dangerous waters? Will I end up like NoMoreOptions?
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I have been trading stocks and options almost a decade.
The latter half of my experience has concentrated on OEX options,
with occassional stock option trades, but the OEX is my staple. All my trading is straight call or put buying.
Why do I trade options?
Because I can concentrate on one thing: the OEX.
I find it difficult to scan and monitor a large group of stocks.
Time wise, it seems like scanning the stock universe is all consuming. Quality family time suffers. I end up with no life.
By concentrating on a single index, you either get to know it well enough to successfully trade it or you move on to something else. The "get good or get out" concept.
When the OEX activity is slow, I will also occassionally buy options on certain stocks that I feel have great charts, but I don't spend a lot of time on individual stocks.
I never risk more than 4.0% of my option account on anyone trade and I never have more than 2 open positions in the same market direction.
I hope that was helpful.


Jeff
 
aeliodon:

Broad Based Index Options per CBOE

DJX - Dow Jones Industrial Average
DXL - Jumbo-DJX Index Options
OEX® - S&P 100® Index Options
OEX® - S&P 100® Index LEAPS
XEO® - European-style S&P 100® Index Options
VIX - CBOE Volatility Index® Options
SPX - S&P 500® Index Options
XSP - Mini-SPX Index Options
SPL - S&P Long-Dated Options
SML - S&P® SmallCap 600 Index
NDX - Nasdaq-100® Index Options
MNX® - CBOE Mini-NDX Index Options
MML - CBOE Mini-NDX Long-Dated
GTC - GSTI™ Composite Index Options
RUI - Russell 1000® Index
RLG - Russell 1000® Growth Index
RLV - Russell 1000® Value Index
RUT - Russell 2000® Index
RMN - Mini-Russell 2000® Index
 
I also like Dave stay focused on the OEX. I like the slower price changes with OEX options compared to the ES futures. However I really wonder about some of the inconsistancy in time regarding fills. Closing an order is generally quick but often I find I have to wait up to around a minute to know whether or not I have been filled on a placed order. This is a hassel. Makes me really wonder what's happening with the market makers. Sometimes one option appears easier to trade than another. I am not sure why. It may be a different market maker?

Yet I do like the OEX and would very much appreciate hearing others comments on this market as well as any of the other options markets.

Ron
 
Quote from roncer:

I also like Dave stay focused on the OEX. I like the slower price changes with OEX options compared to the ES futures. However I really wonder about some of the inconsistancy in time regarding fills. Closing an order is generally quick but often I find I have to wait up to around a minute to know whether or not I have been filled on a placed order. This is a hassel. Makes me really wonder what's happening with the market makers. Sometimes one option appears easier to trade than another. I am not sure why. It may be a different market maker?

Yet I do like the OEX and would very much appreciate hearing others comments on this market as well as any of the other options markets.

Ron
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Ron,
I have also had the delayed fill problem on occasion, but with I.B., it is usually only an occasional problem and not the norm.
Oddly enough, many times delayed fills end up being a positive surprise when they fill a sell order higher than my limit sell price.


Jeff
 
Quote from FiveandDime:
Trading 20 or more option positions at once in my opinion would be extremely hard to watch and monitor. Also options tend to move faster than stock. It also violates my trading plan of having to high of a risk. Since I will only risk 2% of my trading account per trade and with options you have almost 100% risk. That means I would need almost 50 positions to monitor and watch.
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I think I miss something here, maybe you can explain. Why would you need to trade 50 different option positions? For very 100 stock you could buy 2 options. Thats only 1 position still.
You max risk would be the premium of the options ( times 2). Regulate that against your 2% rule and you have the number of options you could buy. No need to put in stoplosses anymore :).

I do not recommend buying long options perse, but it is a good alternative compared to buying the stock proper. If anything it would be for capital requirement.

Ursa..
 
Quote from jeffalvinson:

Why do I trade options?

Because I can concentrate on one thing: the OEX.
I find it difficult to scan and monitor a large group of stocks.
Time wise, it seems like scanning the stock universe is all consuming. Quality family time suffers. I end up with no life.
By concentrating on a single index, you either get to know it well enough to successfully trade it or you move on to something else. The "get good or get out" concept.
More...
Jeff, you actually explained why you preferred trading the index, rather than why you prefer options. You could also trade futures for the index.
I too only trade indexes currently, using options for multiweek short spreads that and futures for intraday scalping, when I find the time.

Ursa..
 
Quote from roncer:

I also like Dave stay focused on the OEX. I like the slower price changes with OEX options compared to the ES futures. However I really wonder about some of the inconsistancy in time regarding fills. Closing an order is generally quick but often I find I have to wait up to around a minute to know whether or not I have been filled on a placed order. This is a hassel. Makes me really wonder what's happening with the market makers. Sometimes one option appears easier to trade than another. I am not sure why. It may be a different market maker?

Yet I do like the OEX and would very much appreciate hearing others comments on this market as well as any of the other options markets.

Ron
More...

OEX options are pit-traded hence the slower confirms, order placings, cancellations and etc.

One note of caution when trading OEX options is the American styling making them prone to early exercise. To avoid that (if desired) one can trade XEO, which is the same index, but has European-style options.
 
Quote from MajorUrsa:

Jeff, you actually explained why you preferred trading the index, rather than why you prefer options. You could also trade futures for the index.
I too only trade indexes currently, using options for multiweek short spreads that and futures for intraday scalping, when I find the time.

Ursa..
More...

Ursa,

I have never really considered trading futures.
My trading system has 1 to 3 day hold times per signal, which is ideal for front month options.
I can't imagine anyone holding futures contracts for 2 or 3 days.


Jeff
 
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