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why trade options ?
- Thread starter Wallace
- Start date
GordonTheGekko
Guest
I was actually thinking the same thing recently.
Moreover, why not trade the heavy leveraged ETF's?
Moreover, why not trade the heavy leveraged ETF's?
Quote from Wallace:
if I think that the ES be higher/lower next week, what advantage is there to
trading an option - a straight B/S - rather than trading the futures contract ?
Once the future position hits the stop then you are out, even if there is rebound - no stops with futures would be insane. With options you don't have to worry about getting stopped out early and you know your maximum risk from the beginning. Also I think options pack more punch if you have the direction right and require less margin.
GordonTheGekko
Guest
Quote from ForexForex:
Once the future position hits the stop then you are out, even if there is rebound - no stops with futures would be insane. With options you don't have to worry about getting stopped out early and you know your maximum risk from the beginning. Also I think options pack more punch if you have the direction right and require less margin.
On your latter comment, if you have the direction correct, most of the time popular, high volume ETF's such as TVIX or TNA (x2 VIX, x3 Smallcap Bull respectively) will bring in higher returns. On 4:1 margin, this is up to 12 times leverage. Again, have the direction correct. Or adjust your leverage risk with options later.
here's a what-if trade
Mon Oct 3/11 , Sell one ES contract at 1111.00
looking to close the trade at 1051.00 or there abouts
the 1051 might get hit this week, but might take until next week
I could daytrade each session and not have to front the $5K, but would have to pay
the rt commission of $4.50 each day rather than once when the o/n trade is closed
if the price reaches 1051 and the trade is closed the profit is $3,000 -
60 points x $50 per point
what option would need to be bought ?
what is the cost of the option ?
what is the commission ?
what's the profit of the option trade ?
Mon Oct 3/11 , Sell one ES contract at 1111.00
looking to close the trade at 1051.00 or there abouts
the 1051 might get hit this week, but might take until next week
I could daytrade each session and not have to front the $5K, but would have to pay
the rt commission of $4.50 each day rather than once when the o/n trade is closed
if the price reaches 1051 and the trade is closed the profit is $3,000 -
60 points x $50 per point
what option would need to be bought ?
what is the cost of the option ?
what is the commission ?
what's the profit of the option trade ?
Future contracts respect support / resistance / channels. So it is better to trade futures for direction of the market. Options allow you to trade the volatility of market, or the level of fears in the market.
The margin advantage of leveraged ETFs does not exist. Most brokers have a margin surcharge for leveraged ETFs, which exactly cancel the leverage.
In terms of dollar risk exposure, future and etfs are equivalent. If you are constrained by margin, you probably want to trade less, not more, in order to preserve capital.
njrookie
The margin advantage of leveraged ETFs does not exist. Most brokers have a margin surcharge for leveraged ETFs, which exactly cancel the leverage.
In terms of dollar risk exposure, future and etfs are equivalent. If you are constrained by margin, you probably want to trade less, not more, in order to preserve capital.
njrookie
Quote from Wallace:
here's a what-if trade
Mon Oct 3/11 , Sell one ES contract at 1111.00
looking to close the trade at 1051.00 or there abouts
the 1051 might get hit this week, but might take until next week
I could daytrade each session and not have to front the $5K, but would have to pay
the rt commission of $4.50 each day rather than once when the o/n trade is closed
if the price reaches 1051 and the trade is closed the profit is $3,000 -
60 points x $50 per point
what option would need to be bought ?
what is the cost of the option ?
what is the commission ?
what's the profit of the option trade ?
if you put up 5k in equity, your 3k profit is a 60% gain.
if you buy a ESZ1 OCT 1120 Put (I chose front month b/c this seems to be a quick trade, you could always go front+1 or 2 for less theta risk)at the ask of 44 (iv of 42.2) and ES goes down 50 points to 1070 assuming vol stays constant (it would prob increase but I'm being conservative) according to B/S if 5 days passed the option is worth around 66 for a gain of 50%. obviously you'd make more if you went further out of the money. there are definitely tradeoffs. just showing the possibilities. it's important to look at trade risk and rewards BEFORE entering a trade.
GordonTheGekko
Guest
Quote from njrookie:
Future contracts respect support / resistance / channels. So it is better to trade futures for direction of the market. Options allow you to trade the volatility of market, or the level of fears in the market.
The margin advantage of leveraged ETFs does not exist. Most brokers have a margin surcharge for leveraged ETFs, which exactly cancel the leverage.
In terms of dollar risk exposure, future and etfs are equivalent. If you are constrained by margin, you probably want to trade less, not more, in order to preserve capital.
njrookie
There are generally multiples variants of a leverages ETF, so purchasing three or more of the same (possibly from different underwriters) will put aside the stupid marginized limit. Besides, the usual limit is 30% on margin, so 9 times leverage on the SPY or VIX instead of 12. Vix on an intraday basis also follows the S&P perfextly (inverse), so real leverage would be well above 12 if one trades vix intraday. Thoughts?