index vs stock option trading

Discussion in 'Options' started by buybig, Oct 23, 2007.

  1. buybig


    New to the game..

    im noticing a few key contributers to the board. Its nice to find a trading/investing board w/o a bunch of trolls.

    on to the question..

    should i start trading index options? why or why not?

    whats the fundamental difference?

    Thank You to anyone that contributes w/ a legitimate answer.:)
  2. I can predict index moves more accurately than I can individual stocks. I seem to be more times right than wrong on index moves. I do trade index options for leverage.

    I look at index volume analysis. It seems to work well for me.

    On individual stocks I do suck at it. Although I have been analyzing some stocks that correlate to index moves. I have not trade inidividual equities yet, but I will at some point.

    My 0.02
  3. MTE


    The fundamental difference is that the index is not affected by earnings, CEO resignations, takovers, competitors and etc.

    You're less likely to get price gaps with an index.

    As the OP mentioned, it is just a matter of preference.
  4. buybig



    sounds pretty nice..

    seems like alot of noise is filtered out..

    what kind of technical indicator would you use when trading an index?

    im a big fan of 10-20-50-200 period sma, support/resistance levels, fibb retracements, macd, stochastics, RSI, moneyflow, and basic candle sticks applied mostly to daily charts.

    so what would be a valid strategy to trade an index?

    thx guys:)
  5. Having traded both stock and index options for about 10 years, I "totally agree" with the comments by Ctarmor-et and MTE.
    Index and index tracking stocks like the SPY options are much
    more consistent in performance, less volatilie in whipsaw markets
    (like the present market), and are easier to make money on because you spend all your time on just one thing. Learn one or indexes and learn them well.
    Think about it:
    If you spend all your time analyzing and charting the SPX index, and then appying those conclusions to trading the SPY options,
    your chances of success are much higher then spending "every waking minute mindlessly screening and charting 50 to 100 individual stocks every night." I done the latter and it will age you very rapidly!
  6. Are you asking about true index options like SPX, OEX, NDX, RUT etc, or index ETFs like SPY, QQQQ, and IWM?

    For one thing the true index options get 60/40 longterm/short term tax treatment. Another is they are settled in cash, e.g. if you are assigned a short put you don't get shares. Index options are only traded at CBOE.
  7. buybig


    wow, thats a good question!

    im not sure. the 60/40 is very lucrative though.

    i assume the index etf's are treated like stock options. why the tax break on the true indexes?

  8. buybig


    thanks for the advice.. screeining for stocks sucks..

    do you prefer a specific technical indicator for index trades?

  9. There are so many inidcators that I got all confuse .. all I use now is volume analysis on buy/sell balance....

    I use a serice call I ahve adjusted all indexes I trade to my preference for intrday trading ...

    I monitor R2K, SPX, DJI and Nasdaq100. I have much success feeleing the market through the volume graphs. ThenI usually trade IWM Options because their liquidity and spread is usually 1-2 cents.

    I make 10%, 5% hee and there. But sometime you can loose the same. They key for me is to feel the market buy/sell volume. Once all 4 indexes point on one direction, it is matter of time before the move towards that direction. It does work well determining direction when the market is in a tight range and you expect a breakout.

    Beware it does not work well on Fed Announcemnts days :) ....

    I dowork fulltime but soon to be trading ft.

  10. My trading system is insanely complicated.
    I use a combination of several things that I have learned through the years.
    1: Candlestick Charts and simple moving averages using various timeframes to establish long term, intermediate term, short term
    and micro-time frame support and resistance levels.
    2: Pivot Points.
    3: Mathematical Trend Analysis.

    I basically start with longer term time frames(weekly and monthly candles) to get the big picture going.
    I then start looking at shorter term time frames (daily, hourly and 30 minute candles) to bring the big picture into better focus.
    Finally, I bring up my Trade Station and use micro-time frame
    (15 minute and 5 minute candles) charts of the SPX overlayed
    with Pivot Points for an exact entry.
    Sometimes the charts don't have anything for me to trade, so
    I use complex formula's for mathematical trend analysis
    which give me a short term directional bias and a quick profit (or loss).
    Last year (2006) the math formula's under-performed the norm.
    This year they are kicking ass and taking names.

    The most important thing that I have learned in trading options (and the markets in general) is that it takes more then one system, or strategy to have consistent results from month to month and year to year.
    "There is too many variables for a single "do it all trading system."
    Markets trend up....trend down....go sideways.... volatility dies for months and then volatility explodes and markets whipsaw!"
    #10     Oct 23, 2007