as a longtime options trader, i have been trying on a small scale a new type of trade. i am interested in talking to others who may have tried daytrading on the short side. playing gaps, reversals, trends, etc. out completely eod. last week i sold puts on es when i decided the market went as far as it would go for my timeframe. i went 40pts otm and bought back on a reversal. i only netted 1 pt (slippage, lack of experience, etc) on 10 lots. i am trying this strategy because i believe the options offer me more of a possibility of grabbing the points than trading the underlying using stops. being otm offers me that cushion that i am used to and reduce the emotions when you are watching your account move toward the stops when trading the emini's. again, i am looking for comments from those who have tried daytrading options; not those who never have tried; even if your theories on why not to trade options make sense.
Your risks will be larger when daytrading options instead of futures. (1) There is no "cushion" with out-of-the-money options. Their values will adhere to the valuation equations. (2) The emotions will be the same. You'll still have to contend with when to get in and out of positions. (3) You can expect larger slippage with options. (4) The option-greeks can influence option values differently than what you're expecting. (5) Selling index-puts is riskier than selling index-calls. When the market falls, implied volatility usually goes up, more to the detriment of the put-seller than a call-seller who becomes farther-out-of-the-money. (6) Your "strategy" should work best during the week before expiration when the time-decay is strongest. Take it all with a grain of salt.
well nazz, as you may know, i am determined.... although i am more of a tape reader, i am betting on collapsing vols on each trade. last monday the market was gapping up and i saw some printed call sales that were so much beyond what i felt was fair value. i put in some orders, hit and then closed later for a full point. i am very aware of the greeks and how they effect prices. i keep this in mind all the time. i also believe that vols overall will not stay at these levels. the cushion that i am refering to is since i build wotm positions, i am comfortable with carrying these positions, although my worst case hold will stay at 48 hrs. prices do swing a lot on the options and i will take 1/2 point too. thanks for the reply.
Have you considered curvature and theta ? If you are intent on day-trading direction using options, you'd be much better off going long OTM options, rather than short.
when choosing the best strike i take gamma,delta, etc into consideration. i have most of my experience with picking overpriced options that i believe will revert to the mean shortly. i have done well with long options. with the most recent vol in my core trading, i have made most of my money closing long positions that were protecting shorts ; and then re-entering the longs when the market turned away from the strikes. because i do that a lot, i wanted to try this. emphasize the "try". the last two weeks of success may only be due to the crazy reversals that i caught. for instance, today i did: 10/calls sept 835 netting 1.1 pts(sold @ 9.8, bot @ 8.7). i sold when we were plus 3.5; and got my price when we were flat on the index.
I hear what you're saying, but my point is that you'd make more money going long options. This is because of the inherent curvature (gamma), yet the flip side (theta) is negligible when in-and-out the same day. Nice one. But have you looked how your P&L would have panned out had you bought a Put of the same delta, given the same move in the underlying ? Considering also you wouldn't have taken on unlimited risk by going long Puts, I know which side I'd rather be.
i hear you too. i take that you do not trade much directional options? the puts earned well, as i can see. i will try some longs half size. thanks for the input.