During March I run some of my trades in parallel on stock shares and stock options. I sized my stock position based on my stop loss then rounded it to 100's. I also bought one near in-the-money options contract for each 100 shares (calls for long stock, puts for short stock). I used market and stop orders, and entered and exited both the stock and options positions at the same time. March results are as follows (R is the stop loss risk): <center><img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1026187></center> Notes: the average win was larger when trading shares the average loss was about the same for shares and options; this was caused by the larger options' slippage expectancy and Kelly ratio are higher when trading shares, but there is a "hidden" risk for an outlier loss
fwiw, i tend to make more money with options than stocks, but i almost always buy Out of the money. i guess i am awarded for decent directional prediction. i actually use single stock futures a lot. i find them generally superior to in the money options, although in many ways they are pretty similar
Money management,....the way people break down the entity and treat trading as separate issues must be some kind of phenomena. PA dictates everything on any market, S/R and price channels give you a clue to direction and obviously the volume shows how committed the big boys are to a particular move on any time frame. How can money mangement be such an issue? If you want to blow the lot on one trade, that's up to you, but you are very much mistaken how things work on the market, if that's your angle. Throwing dice and flipping coins.....it's a tosser's game. Can you afford your next trade?
Just a comment...."Buying Insurance" is usually pretty foolish (buying options.....options are meant to be sold...time decay will eat you up)...and you're paying double commissions.....and we teach our people to never use actual stop orders (for so many reasons)....use price triggers, when triggered -- "evaluate" then either proceed or adjust with the trade. FWIW Don