I go by the mantra that if one does not take this endeavor more seriously and cannot be bothered to make available more than 1000 dollars or, for that matter, 10k, then one was not truly good in the life thus far, what makes someone suddenly good at trading which requires much more discipline? If someone in Western or industrialized economies cannot safe up more than thousand dollars and invest in a serious business then I have nothing else to say. (I am not judging how you started as I do not know the details and its not relevant anyway, I am more talking in general terms).
Yes, this is why I specifically said SPY options. I've done it myself, and I've watched it and analyzed it, and traded it for at least half a dozen trades to get a sense of real world fills. The SPY moves incredibly close to the ES, and the options on the SPY have enough liquidity that you can get in and out fairly quickly, and often, the spread is only 1 cent. It helps to have up several options, both puts and calls that are ATM, and adjust as the day goes on in case the SPY moves a dollar away, but it is 100% doable. Even if the spread is 2 cents, hence $2, this now represents 0.2% of his 1k account. I'm not saying that it is ideal to be trading like this, but given that SIM trading only gets you so far, and given that you need to both lose real money and make real money to get a real feel for both yourself and the market, doing this with SPY options as opposed to ES contracts can absolutely save your ass. If you try your first day trading and somehow lose 10 points in the ES, you're down $500, but if instead all you did was enter market orders with the SPY options, and hence get even worse fills than using limit orders in the ES, you're only paying an extra dollar or two, and you will be down much less than $100.
I have to agree with Zzzz on this one. It should not matter what the trade risk represents as a total percentage of the account. To be safe, one must treat their trading as a business. And not many people are successful in starting up a business with a "relatively" small amount of money, in the long run.
Look at it this way. Lets just talk ticks. How many tick do you want to risk in order to make a profit? Lets risk 10 ticks to make 20 ticks, sounds good? Lets assume that if I put on 10 trades, 4 make me 20 ticks, hence 80 ticks made, and 6 lose me 10 ticks, so 60 ticks lost, and hence, I'm still up 20 ticks. Now lets assume I go crazy. Lets say I risk 20 ticks, and only aim to make 10 ticks. Lets say I lose 7 trades, so I lose 140 ticks, and on my 3 winners, I make only 30 ticks, so I'm net negative 110 ticks. Now lets look at what 1 tick is. With ES, 1 tick is $12.50. So if I lost 110 ticks, I lost $1,375, clearly much more than my 1k account so I would have had to stop much sooner. But if instead I lost 110 ticks which are only $1 with SPY options, I lost $110 dollars. Heck, lets even add in 1 tick slippage on entry and exit, so for these 10 trades, I lose another 20 ticks, so 130 ticks lost, and hence $130 lost. Furthermore, when it comes to commission, for ES, its $2.04 one way, whereas for 1 SPY option, its about $1.50 or so if I recall, so even a bit better, but sure, the spread or slippage might kill you, so best to just add on an extra tick and call it worse. No matter how you slice it, the fact that 1 tick of SPY options is $1 vs. $12.50 means that you can survive much longer. And won't just about everyone say that in order to get to the profitable stage you need to survive long enough?
The same can be said about GC vs. MGC. GC is $10 per tic, while MGC is $1 per tic. And the commish for MGC is half, like your SPY vs. ES comparison. Let's plug it in with GC/MGC futures. If you lose 110 tics on GC, you lost $1,110. But if instead you lost 110 tics on MGC, you lost $110. Same thing. It all comes down to what one should be doing with the capital they have on hand. Now here is the elephant in the room in your example, and that is that you are talking about an option vs. a future, whereas I am talking about a future vs. a future. Are you saying that with SPY options, there is absolutely no way to get into trouble above and beyond "1 tick of SPY options is $1"? Do you pay premium to get into the trade? Get out of it? ITM, OTM, ATM, etc? Buying calls at strike price, selling puts OTM, premiums, yikes. I hate options, they are so confusing. The question is...What is the worst thing one can do to their account with 1 SPY option with $10k in their capital account?
I have brought this up before in another thread, and what I learned was that if you let it expire in the money, then depending on the broker perhaps, you may or may not own SPY shares, and these may drop in value over the weekend, so you could perhaps wake up to a surprise. (I dont understand how this could be though because the margin to trade options from what I remember was very low and only the cost of the option) I would of course do more research on this if this is in fact what I was going to do consistently, but from my understanding, if you will be trading SPY options, and only buying calls and puts, that are ATM, with the closest expiry, and you make sure to be flat at the end of the day, then your risk is pretty much limited. If a nuclear bomb goes off and the market is halted, well, who knows what happens then, but because its an option, from my understanding, the most you can lose is the cost of that option. And since most options that are ATM with a close expiry date are only about $1, hence you need $100 of margin, even if you drop dead, I doubt your heirs will have a messy financial problem to deal with in your estate. I don't recall exactly how the options affected my margin, but I think it was only the price of the option. So to trade a $2 SPY option, I believe that only $200 worth of buying power is used up, if I'm saying that correctly, since this was the most you could lose.
I understand that you may have a conundrum about what the max is that can actually go wrong with 1 SPY option. Confuses the hell out of me. Just wanted to mention here though, that if a nuclear bomb goes off somewhere and the market is halted, the most you can lose is your life, because if that does occur, then not only will your option expire OTM, but so will you. As will all other life on earth. So if nukes start flying around, best to try to go long in lead futures before there's nobody left to trade with...? hehe.
I have been using optionshouse started with $ 2000 taking profits once my account goes above 5k. Only trading weekly SPY options 4 or 5 days to expiry with half size of my account, if a trade goes against me then I hedge with taking other side of trade. Last couple weeks market chop in a tight range so not great returns with SPY but once VIX above 14, my strategy has good returns. I finished last year with above Trading with 1k is possible especially optionshouse lets you deposit any amount and trade it.
What are you talking about? The spread right now for the ATM is at $0.75 = 75 cents and during US trading hours it is probably between $0.25 and $0.5 wide. (ES Mar 17, 2290 Call). Hence the spread is 5% of a $1000 account alone. That is not even taking account of commission and slippage. Even the spread for SPY ATM options is around 3% wide. The cost for the ES ATM call is $1437, exceeding his entire brokerage account. To get to a comparable notional with SPY options you will first get rimmed by huge commission charges. Geez, why are we even discussing this. It is ridiculous. Its like saying you can strike it rich in the casino (with all the house edge against you) by being bankrolled with 1000 bucks and playing 1-cent slot machines.
Who is talking about right now? I'm talking about trading the SPY options during RTH. All your examples to do with the ES, during overnight, is total bullshit because this isn't what I'm talking about. The fact that you can't even follow my examples has me really having to re-evaluate if you honestly have a clue. Furthermore, nobody is talking about striking it rich. Before you can think about increasing size, you have to prove to yourself that you can be profitable after a series of trades, so executing this series of trades is what is pertinent. Whether that series consists of ticks that are $12.50 each or $1 each doesn't matter. Now lets just give you a very basic example from today, and once again, this is the SPY and a SPY call, so don't come back blabbing about the ES. The 228 Call is on top, the SPY shares on the bottom. As you can see, the option has a low of about 80 cents, and a high of about $1.50. During the first hour, the spread was easily 1 or 2 cents wide. If you just so happened to buy the option in the low 80 cent range, and held on to sell close to the top, (not suggesting this is in any way possible), this would net you a max of 70 cents, or $70 dollars. Furthermore, although I'm not sure of how the math works exactly, since this was an option that was about 80 cents during the low today, it would have required less than $100 in margin. Feel free to correct me if I'm wrong because I haven't actually watched how this affects my buying power when I was experimenting with options. Now lets flip this example around. Suppose at the lows, you wanted to short, and hence buy the Put. Here is the Put option on top, SPY on the bottom. Notice how it has a high of about 48 cents, and a low around 16 cents. I'm not an options expert and so I'm not getting into the theory behind how these things move, but I do know that if I thought that at the open there was weakness, and I wanted to short, and I bought this put for 48 cents, even if I held it the entire day, praying for a turn around, I would only be down just over $30. If I sold it for the 16 cents at the end, I would have lost a total of $32, plus about $3 in commissions. So now tell me, how is this going to kill my account in one day? Like I said, sticking to a stop of 10 or 20 cents to simulate an ES stop of 2 or 3 points, which is what many trades do allows one to trade with real money, while using a fraction of the leverage and exposure necessary for trading the ES. Lastly, here is a 229 Put that is perhaps more appropriate for this example since I'm talking about buying options, puts or calls, that are in the money. So if you wanted to short, perhaps buying the 229 Put would be better. We have a high of 97, and a low of 35, for a range of 62, so the most that a person could have lost today buying this put was $62, and this correlates well with the 228 call which would have netter $70 if you got the direction right and went long. This is still too much to lose for a $1000 account (the $62 loss on the put), but once again, for day trading purposes, with a stop of about 10 or 20 cents, which amounts to a loss of $10 or $20 plus slippage and commissions, is acceptable.