Best ways of translating intraday futures trading to options (or future options)?

Discussion in 'Options' started by anycolour, Oct 17, 2020 at 2:36 PM.

  1. anycolour


    What are some of the better ways for an intraday(scalper) futures trader to trade similarly using options (or future options)?

    Some parameters of futures trading:
    Profit target average between 5 and 30 ticks
    Time in trades: less than 30 minutes
    Aiming for at least a 1:1 risk/reward. E.g., $200 profit/$200 loss

    I'm interested in learning if I could trade options/future options under my futures trading framework. Maybe with options I could potentially extend my time horizon for my trades to have more time to be successful, before being stopped out with futures, while maintaining similar risk.

    So, what to do with options?
    What strikes? ATM/ITM/OTM/?
    What duration? 1 day? 1-5 days? 2 weeks?
    Best way to keep fidelity with future instrument (/CL, /ES, /GC, etc.)? Using future options? Using ETFs (USO, SPY, GLD)?
    Straight calls/puts? Or other strategy (verticals, iron condors, etc.)?

    Thank you!
    studentofthemarkets likes this.
  2. Axon


    My option day trading is confined mostly to equities and I only really swing trade futures but that said I find it really important to minimize anything affecting my option aside from the price of the underlying, i.e., i don't want to muddy the waters with theta and changes in IV. I want the option to move in lock step with the underlying just with the benefit of added leverage.

    I mostly day trade long and I buy straight up calls ITM with delta of at least 90. That way most of the value of the option is intrinsic and time value/implied volatility are negligible. As far as expiration I usually go a week out so I have a little flexibility for when I have to sell. Even if I end up with the occasional day"s" trade, 90 delta keeps theta from taking me out.

    I'm on mobile but I hope that helps and good luck.
    zenlot and ffs1001 like this.
  3. narafa


    I would say that you need to strike a balance between Delta to Premium vs. theta in the framework you mentioned in the OP across different expires, typically between 1 day to 14 days.

    ATM options would typically give you the best delta for scalping, the choice of which expiry would largely depend on Delta to Premium vs. theta. Since you mentioned your time horizon is like less than 30 mins, so in such cases, you need to put more weight on Delta-to-Premium vs. theta (Say 70% weight on Delta-Premium and 30% theta).

    One challenge though. You might find out that due to low liquidity in future options and wide bid/ask spreads, a decent short term move in the underlying future of say 10 ticks, might barely break you even in the option trade.
    anycolour likes this.
  4. anycolour


    Thanks Narafa. That helps.

    When you say 70% weight on Delta-Premium, would that be +.70 delta for calls and -.70 delta for puts?
  5. narafa


    Well, I actually meant 70%/30% weights in the decision making process, i.e. more importance to Delta to Premium vs. Theta (Instead of 50/50 or trying to choose something in the middle ground), that's all.