Without a view on volatility (magnitude and timing) of the move in the underlying there is no edge in trading options.
When it comes to options the only permanent biases I have are fondness for liquidity and long gamma. Thus I am generally focused on the ES and the E/U futures and I don't sell options naked. I like positive or neutral gamma because negative gamma positions are (in my opinion) much more difficult to manage. Aside from that I will try to take what the market is offering. In the current environment this usually means scalping the futures against long gamma and long vega positions; i.e. trading volatility. I try to keep theta low, but of course that's not always possible. I do not use options for directional trades because I can get all the leverage I need from the underlying futures, and of course with lower transaction costs. That said, at this moment in time I have no open options positions. I keep trying to make the numbers work, but until that happens I will only be daytrading the underlyings.
I really appreciate your post. This is turning out to be an excellent thread. Thank you @qlai. I do want to repeat a couple of comments I posted several times prior: 1. Long run I think @Wheezooo is correct, if I mechanically trade volatility, theta, gamma... the market is too efficient, I will not come out ahead. I sold covered calls, cash secured puts for six months in 2013 (trade small, trade often, hundreds of trades) and had no profits to show. Perhaps time period was too short or sample size too small? 2. I was able to make money trading options only when I had a correct opinion of the underlying direction, or market. I thought butterfly trades could be different. So far, no cigar. However, you have given me some food for thought and some homework to do. I thank you for the suggestion. Best regards,
Keep it simple... No need for all that mumbo jumbo stuff, stick to buying not selling options. Think of Options as leveraged trades, study hard your picks, reduce it down to very low volume and profit... Instead of earning 10-15 % if you had bought shares or shorted, earn 200-300 % buying calls or puts, volatile cases 500 % + https://www.timelessinvestor.com/20...10000-into-12-million-using-value-investment/
@ironchef here is a quote from KS a while back. It's one of my favourite trading quotes of all time. I highly recommend you print it out and put it by your monitor for awhile. "Most of the time play tight to the vest, watch your risk closely and try to make enough to cover the overhead and live well. When you find an edge -- an arb or a quasi-arb -- pile it on, hit it with everything you've got, gear it up, borrow money to play it ... and keep doing that until the arb goes away. Then spend your time looking for the next one." We all know the market is efficient. That does not mean there are no opportunities. What Wheezel was saying is that in general options are efficient so you shouldn't trade them. The first part is true, but there are times when the market is not efficient or there are times when the risk premium is higher than it should be. It's during these times where you want to double down. With that being said, in order to find those wrinkles, you need the skills/tools to be able to exploit them. As a retail trader, you only need 1 "sure" bet a year that can make all the difference. Start searching for those. When you find one, press it (make sure if you are wrong you don't lose your shirt)! Contrary to what Wheezel thinks, these opportunities do appear and more than once a year!
@TheBigShort, thank you for sharing. Does this quote suggest to be long gamma? P.S. Let's not get offensive towards other contributors ... So many people just leave the forum and we don't get to hear their opinions. We've got a good discussion going here.