Here's my another concern. Future: If I buy future, every point I gain will go into my pocket (after transaction costs). The same applies if it goes against me. Option: A change of 1 pip in future does not guarantee a change of 1 pip in option. I expect it should never has a change which can be more than 1 in any case. So it must be equal or less than 1 pip change. What's more, I need to pay for the premium for the option, especially if it is in-the-money. Eg: Future price is 10000. For Put 10200, strike price is 400. So actually the future has to drop by 200 to (9800 - "transaction costs in term of pip") before I can gain. Limited Risk, but harder to gain.
Hi, Wim at this point in time, I think it's better if you read some books on options first before you trade any options, because options trades will involve greeks which will take some time to understand and get familiarized with. An options trade will involve volatility, gearing/ leverage, speed of change, and time value. When you trade options you have to consider all these factors and marry them with your TA for directional trades or for non-directional trades. You need to familiarize also with multiple positions/ spreads and how they will behave differently as a spread and what to do if you need to repair or adjust your positions. Once you have read the options books, try to practice some virtual trading and apply/ observe yourself. Futures is purely directional without the complexity of volatility, different levels of gearing, speed of change, and time value. When you trade options, you are basically also trading these components and have to manage them well too. That's the basic difference between options and futures. There is no better or worse it depends on the usage. However without good familiarization it's more difficult to trade options because these components will interfere with your resultant outcome. If you can manage the greeks component, I say options is better or has better potential than futures. When you are trading options you are marrying the underlying trade and the greeks components trade. Much higher potential if you can combine them. For short term trades, sometimes during intra-day or overnight there is no good opportunity for you to trade options intraday but some other opportunities, like for example when there's high volatility and price movement, or when close to expiration, there exists opportunites for better returns in options than futures. This is because for intraday or overnight trading, to overcome the wide bid-ask spread, the greeks components must align and help you as well.
WMWaster, Pick up a book on options. Your knowledge of options is too vague to provide you with any meaningful advice/insight.
I can't get what you mean. I can't see there's any potential on options. You said I need manage not only the prediction of the trend, but also all sorts of things like voliatility, time value etc. for option trading. Then you said I just need manage the prediction of the trend only for future trading. But you turned out to say options is better or has better potential than futures when you manage toptions well. What's the point of trading options if it's more complex than future? Why are you willing to spend extra efforts to deal with its complexity and trade options? Why not just trade future straight away? There must be some advantages options give you which I miss them. So what are they (or their potentials)? Could you mind explaining that? It helps me to decide if I should learn options or not. Hmm... You mentioned when there's high volatility and price movement, there exists opportunites for better returns in options than futures. I can't get it. If you trade future, you gain for every point it rises. It shouldn't be true for options. Even if you buy very in-the-money options, 1 point rise in future may not transfer to 1 point gain in your option. It should be less as delta is always smaller than |1|. how come you say options has better returns? As to "close to expiration", are you going to sell calls/puts as you gain as time value declines more dramatically?
I'm definitely willing to learn by mself, as it's what I did for stocks & futures. However I wish to know if options is suitable to me first. I don't wish to learn something for long time which I discover later I go on the wrong track - I should learn options at all. Why do you guys trade options? You know, future is much simpler than options. Still you guys decide to trade options. What lead you trade options instead of future? Would you mind comparing the pros/cons of "futures vs options"?
Options are an expression of volatility. The average trader cannot isolate vol in any other instrument. The knowledge barrier is high, but the price of admission is low. Newbs bidding insane values for vols w/o regard for anything other than a directional bias is one example of why some of us trade volatility. It's my belief that edge is a function of participation -- there is much less "informed" competition in the option markets on the public side of the business. There are more sheep than wolves.
I don't feel we have competition, really. It's because I can always find someone who are willing to do the opposite, no matter it's in stocks or futures. You just need to do your best - predict the trend! That's it. No competition really. Is this the only reason you trade options - more sheep than wolves?
WmWaster, I can see where you're coming from with your point of finding out whether options are suitable for you or not, but, unfortunately, without some basic knowledge of options noone can really answer your questions. To put it another way, we can easily answer your questions, as many people have already done here and in other threads, but, not to be rude, you obviously do not understand the answers, and the reason you don't is because you don't have the basic knowledge required to understand them. You want to know whether options are suitable for you, then educate yourself on some basic concepts. Only then you will know whether options are suitable for you or not.