On the other hand. . . This begs a question I have had in my mind for a while. It is a question mainly directed to those of you who are independent investors, have been at a while and done well over a period of time. The question targeted to the sole proprietors, so to speak and less to the market makers, brokers and the like. Did you start out by paper trading and keeping it to one or two contracts in order to learn? For those of you have done well, is that how it started for you? Somehow, I think not. If I am wrong feel free to smack me. John
John I don't know if I qualify to answer your question but as a second year student (and nicely profitable so far so good) no I didn't paper trade although I do so now on a strategy I want to look at. Currently I'm paper trading both an spx diagonal and a VIX calendar. I did start small compared to the total portfolio but it is still comparatively small. Most of my option trades I risk less than 1% of total portfolio value. That is what I'm comfortable with. My spx trade (OTM IC's)I do monthly I started out small... 5 contracts. Then 10 for several months...then 20 for several months then 40 and now between 75-100 and needless to say that is quite a bit more % wise of our total portfolio...HOWEVER I've been doing it for a year now and have had many adjustments and one losing month under my belt and am quite comfortable with it. I've learned a great deal from coach and the other traders in the SPX thread...also in the yahoo groups. I keep available cash to adjust with or trades that I can sell against and free up cash as well as stock that I can sell. I've also handled a small account (40K) for an aunt that needs $500 a month since 2003 and have averaged 18% a year for her by doing only the best of the best trades I can come up with careful covered calls ..winning vertical's and in this account 1-5 contracts on naked puts (to accumulate the stock) max 10 contract verticals...usually calendar's.
Richard, as always I regard your comments as being prudent and wise in the area of trading and risk management. I too I am learning from others just by reading their posts. Some of them in my opinion have as much knowledge and ability as the published authors often mentioned, they just haven't written any texts on the subject. Thanks for sharing. John
Horrible book review. I am pulling my hair in my chair over here reading this tuff. The four points were horseshit in my opinion. Whoever, the reviewer of the book was needs to do alot more reading on the subject of options before they review another book. Also, basic logic 101 would also help :eek: 1. Nothing wrong with directional trading. What should a newbie do instead? Delta neutral tick playing? Longshort straddles? And again, just because the implieds are higher than stats doesnt mean the option is overpriced and its a bad idea to buy it, ahhhh.*pulling hair* 2. buying OTM options = buying low probability options = port blowout. Again, horseshit, wont even bother touch the logic here. What do they suggest? Only buy deeply ITM? LOL 3. what is complex? is it ratioed combos? is it more legs? complex = bad risk/reward? Is a FLY complex? Horrible logic yet again, who is writing this stuff? 4. liquidity - i will give him that but i somehow doubt the new trader is looking at illiquids vs the amzn's, goog's and appl's out there. The illiquid options is where you will spot the inefficiencies if there are any to be found by Joe Retail.
I see someone here bought OTM, way out and consistency making double, triple so the answer is 'false'
one can do well with far OTM options as a way to play very short term (several day) directional plays on a stock with plenty of leverage. If you can beat time decay, the contract volume can more than offset the risk. The strategy doesn't warrant holding the options to expiration obviously. This strategy is good especially 45-60 days out, I believe.
Or use ThinkOrSwim - no ticket charge for under 10 contracts, just $2.95 per contract. I think there are one or two others but I don't recall at the moment.
I am almost completely in cash at the moment, because I am moving my account from E*Trade to Thinkorswim.
thats expensive. I use IB at $.75/contract no minimum and no ticket charge. i also switched over from etrade a while ago. best thing i ever did, although its good to keep a little cash in the etrade account just in case there are tech problems with IB. Same goes the other way around.
The above reviewer can be found with this book at amazon.com : The Four Biggest Mistakes in Option Trading (Trade Secrets Ser) (Paperback) by Jay Kaeppel