How to make a killing with options

Discussion in 'Options' started by Pekelo, Oct 1, 2017.

  1. R123


    Good luck to him.
    His IRA ? , he could be a millionaire by years end ?

    My focus is on the inter month "drawdown" of 60k to 25k in a low VIX market.
    Maybe the drawdown plan is to restart again with next years IRA ? :D
    #31     Oct 2, 2017
  2. The name of the game is consistency.

    Buying cheap speculative OTM weekly options can bring nice gains if you are lucky. Doing it as a strategy is a certain path to catastrophic losses.

    To put things in perspective, making 20-30% per year (not 1.5 months) trading options is a very nice gains. Getting to 50-80% would put you in the elite of options traders. Making triple digit returns would make you one of the best traders in the world. Takes years and years of practice.

    Again, I'm talking about consistent returns that can be repeated year after year, without high risk of account ruin. You cannot do it with buying cheap OTM options that have 2-3% probability of success.

    I know this is not what people want to hear, but this is the truth.

    Get real.
    #32     Oct 3, 2017
    iprome and ValueNGrowth like this.
  3. What about accomplishing that in a Week or less...would that make you basically God? o_O

    Compound and compound not to the Moon, but just to the top of the World Trade Center. and then take money out, and repeat.
    Make it rain, accomplish the Supernatural...

    It's all about your ability to predict/Manage your emotions and the trade and chart of DOW/SPY/SPX
    Good trading, maple syrup Kim
    Mazal tov, ET extraterrestrials
    Last edited: Oct 3, 2017
    #33     Oct 3, 2017
  4. I'd be impressed with a 15-month graph. This one doesn't carry the day.
    #34     Oct 7, 2017
  5. I have found buying short term index options typically three weeks until expiration, at the money, to be profitable. I use a time stop of two days maximum on sideways trades and a money management stop of 50% original premium. My exit point is based on the trade type. My allocation for a single trade is up to 5% of my option account, with my maximum overall allocation of 10% for multiple positions.

    I get great leverage and an extreme overnight move against me would not be catastrophic. The downside is the transaction costs are higher with this type of trading.
    #35     Oct 7, 2017
    traderlux likes this.
  6. sss12


    If you don't mind me asking, what are your entry criteria ?
    #36     Oct 7, 2017
    traderlux likes this.
  7. I look for a swing trade setups using active at-the-money options of two to five weeks before expiration. The criteria for me is as follows: an established trend as measured by the slope of an 8 day simple moving average in the underlying, a low volume pullback lasting two or three days, a risk environment consistent with the expected direction of the trade, and some encouraging price action in the inside market, such as bids holding up well to hits if I'm considering a long.

    My holding period typically ranges from three to five days. I allow flexibility in the entry and exit periods to allow my other criteria to be met.

    My trade exit is a break through most recent support or resistance. I use two stop loss points. I close the position if the premium drops 50% or a time stop if the trade is not profitable by the second day. A premium drop of 50% is roughly the equivalent to the underlying price exceeding the prior days high or low against me on these short-term options.

    My results of this system have been modest. Option trading costs are high and I felt it necessary to pay the spread on my profitable, in-the-money options, but now have become lightly traded. If I did not have an Interactive Brokers account, my option trading would show a net loss.
    #37     Oct 8, 2017
    traderlux and sss12 like this.
  8. sss12


    Thanks, interesting. I've been trading a similar ATM strategy with a slightly longer time frame. Simplified, I'm trading a reversion to trend with entry defined by a price action turn back to the primary trend.

    My results have been modest as well mostly due failure to keep the SL at 50% on some of the worst trades as you mentioned. My expectancy is positive if I can keep the losses at that level since the winners with the leverage and gamma have been big.

    So to attempt to rectify the SL issue I've moved my expiration further out. My DTE is now 3 to 7 weeks. While I may only hold a trade for a few days, if I'm totally wrong the SL is easier to contain. I'm giving up some leverage if right, but the expectancy still seems to hold up.
    #38     Oct 8, 2017
    traderlux likes this.
  9. good info on the index options, I have been looking into doing some SPY and SPX option trades, doing put credit spreads, about 3 months out, about 10% OTM, usually close at about 1 month before expiry, and start another one.
    #39     Oct 8, 2017
  10. sss12


    Actually, to clarify my previous, my option swing trading is mostly on NON-index ETF's (and only those with the most liq options). The ATR is larger with better R:R opportunities in my opinion.

    Also, I find the index world "too crowded" with the big boys for my strategy.

    Regarding the credit spreads on the indexes, I think that may work as long as you can get a handle on delta and timing in this low vol environment.
    Last edited: Oct 8, 2017
    #40     Oct 8, 2017