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wayneL
Registered: Nov 2005
Posts: 185 |
07-26-12 11:53 PM
I like to ask a different question first: Can you make a living using straight directional trades on the underlying (or at least be profitable long term if not making a living)?
With a fair few caveats, the answer is yes.
The question then becomes: Do options give the trader any overall advantages in trading direction, over and above the underlying?
Basically you are exposing yourself to delta to trade direction, so delta for delta, what effect does selection of strike/expiry, the extra contest risk, theta, gamma and vega have as the trade develops?
Each trade will throw out a different set of non-linear variables so impossible to backtest accurately (IMO).
One should use the same type of money management rules as trading the underlying as well.
Just some thoughts.
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newwurldmn
Registered: Apr 2011
Posts: 2662 |
07-27-12 01:39 AM
Quote from wayneL:
I like to ask a different question first: Can you make a living using straight directional trades on the underlying (or at least be profitable long term if not making a living)?
With a fair few caveats, the answer is yes.
The question then becomes: Do options give the trader any overall advantages in trading direction, over and above the underlying?
Basically you are exposing yourself to delta to trade direction, so delta for delta, what effect does selection of strike/expiry, the extra contest risk, theta, gamma and vega have as the trade develops?
Each trade will throw out a different set of non-linear variables so impossible to backtest accurately (IMO).
One should use the same type of money management rules as trading the underlying as well.
Just some thoughts.
Without views on gamma, vega, theta or range, you are better just trading the underlying.
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cdcaveman
Registered: Aug 2011
Posts: 3529 |
07-27-12 06:13 AM
Quote from FCXoptions:
I think Charlize Theron should have played cat woman.
Don't trade big sizes on weekly options on a Friday that is for sure unless it's in the money. If your wrong you will lose so much so fast on expiration day.
i liked the girl that played cat women.. blondes can be overrated..
that seems to be everyones first lesson in options.. THETA at expiration.. gamma risk increases right at expiration.. for example aapl could be right between two strikes at expiration with an hour or two to go.. and trade up three dollars and turn a .05 cent option into a dollar in the money option.. if not 5 dollars in the money.. i've seen in happen.. but yea the first trade in options i made i think i lost like 6 grand in thetas..
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cdcaveman
Registered: Aug 2011
Posts: 3529 |
07-27-12 06:20 AM
Quote from TskTsk:
Doesnt everyone here make a living doing directional? Not just ul direction but vola. Systemic alpha where you do the same thing over and over again and make money is hard to come by...most money is made picking direction in a discretionary manner. Am I wrong?
yes .. big direction or no direction.. volatility.. haha.. trading direction is like a different animal.. its funny after reading this thread.. this guys head must be spinning.. "talks of calling the cboe floor?" really haha
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cdcaveman
Registered: Aug 2011
Posts: 3529 |
07-27-12 06:22 AM
Quote from vincentvega:
This is such a great thread post, I wish more would join.
I'm always wondering this too. This quarter I took on a huge drawdown (50%) but I went back to trading shorter term too-I'm already closer to my previous high then my low.  I make almost all of my money the same way I suspect everyone on this thread does.
Here is the $50 question: once a trader goes from a small trader who blows up accounts to a very profitable trader, it feels generally easy to make money doing very little work. Why is it this easy?
"why is this easy" sounds like your about to blow up again.. haha
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wayneL
Registered: Nov 2005
Posts: 185 |
07-27-12 01:41 PM
Quote from newwurldmn:
Without views on gamma, vega, theta or range, you are better just trading the underlying.
A view on vol and range will probably suffice.
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