Is buying options a mugs game?

Discussion in 'Options' started by Pkay, May 5, 2019.

  1. Pkay


    Hi, the general consensus is that buying options, rather than selling, is a mugs game and that you lose with this strategy in the long run.

    Is this really the case? If you buy deep in the money options with a high delta are you not then increasing your probability of success?

    Interested to know if anyone here is consistently profitable just buying calls and puts? Thanks.
  2. Robert Morse

    Robert Morse Sponsor

    I never heard the term mugs game before. I like it.

    It depends on what you want to do. ITM or ATM options as a stock replacement, if you do not over lever, IMO, can work well for short term trading. If the options markets are too wide or liquid, the cost of entering and exit can be high.
  3. Pkay


    Haha, it's a British expression, didn't realise that it's not used in the USA!

    Thanks for replying, appreciate it. When you say "If the options markets are too wide or liquid, the cost of entering and exit can be high" what exactly does it mean?

    I thought that if am option was liquid then it would be easy to enter our exit it. Or am I missing something?

    To be honest, the whole issue of liquidity in options puzzles me. How can you determine how liquid an option is? Thanks.
  4. Robert Morse

    Robert Morse Sponsor

    There are a large number of symbols that have options. Many never trade. Market Makers will make wider markets in these so they do not have to pay attention but still meet their MM requirements. Customers rarely enter limit orders for you to trade with. You can't assume you can always do trades in the middle or a little more than that. If on a .50 delta option you have to pay $0.10 to get in and $0.10 to get out from fair value (Whatever that is), you have to be very right to make money.
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  5. Robert Morse

    Robert Morse Sponsor

    As an example, this is UNH, a large company. These are June options at EOD on Friday. These have an open interest and the markets are still a little wide.

  6. Pkay


    Thanks Robert. I've definitely noticed that some symbols have options with little activity.

    How can you determine if an option for a particular symbol had decent liquidity? Thanks.
  7. Robert Morse

    Robert Morse Sponsor

    They trade often. That means there is customer order flow. What time and sales. AAPL, AMD, SPY, QQQ etc, get a lot of order flow and have many MM competing for order flow.
    Pkay likes this.
  8. dozu888


    stop looking for the free lunch.. it doesn't exist.
    comagnum and smallfil like this.
  9. qlai


    I hear this from you so often that I must ask for definition. Buy-and-hold has been a free lunch lately, no?
  10. dozu888


    anyone on ET actually talking about buy and hold lol...

    just look at all the threads... other than the chit chats, vast majority are about the free lunch that doesn't exist - where is that illusive 'edge' that "I" can find, but all the millions of other traders out there have not found yet lol.

    yet very few are talking about approaching the market like my pro boys do, how to gauge and manipulate the market and take advantage... the 'feast dinner' I have been talking about.

    buy and hold has been doing well, but I wouldn't call it free lunch, but it's just semantics... every investor should benefit from the index upward drift... it's a built in benefit when you subject yourself to the volatility.
    #10     May 5, 2019
    matthewyoung and smallfil like this.