Options Weekly has some answers in their "How to trade options" section. http://www.optionsweekly.com/member/category/option-trading/
If you are a GREEK reader, of the four GREEKS, the THETA is the one that tells you of the time decay value left in your option. Generally speaking, they ( options ) decay slowly and speed up toward the last two weeks of the month. They really start speeding up and reducing the premium in the last week and the fastest reduction of premium occurs on Thursday afternoon about 2 p.m. and thereafter practically goes to zero by Friday expiration. By noon on Friday, the options are effectively zero in premium value, but do not totally expire until the next day. If you trade LONG OPTIONS, the time decay, or THETA is very important, because in a slow moving mature bull trend, say of 3 points a day in the OEX, the TIME DECAY will shrink faster than the profit will rise, and you would LOSE MONEY by buying an option in a mature moving BULL TREND. Even though you are getting a positive move upward. You can tell how volatile the BULL TREND is; by going to a VIX chart. Usually anything below VIX 20 will have time decay FASTER than the possible profit in an upward bull trend. Credit spreads are the way to profit from TIME DECAY. You sell the option instead of buying it. Then collect the TIME DECAY as your profit.
So to summarize, here are some of the key points to consider when getting into an ETF. 1) ETFs lose value over time 2) The more leveraged the ETF is, the worse its effect 3) The more volatile the index (or a stock), the worse the âtime decayâ effect 4) Donât plan on holding ETFs long-term. Instead, play it when you want to ride the trend/momentum 5) Make sure you know what youâre doing before getting into a leveraged ETF Good luck and happy trading!
Don't know what an ETF even is? Still to make money buying LONG options alone, either PUTS or CALLS you need to have acceleration. Some call it volatility, but that is right maybe, but misleading. It is the speed of the price change that is important and of course the volatility of premium ballooning by the pressure of buyers, or sellers. There is an old saying that you only should take the middle out of a trend. The reason behind that is acceleration of price action and premium ballooning. I trade the OEX, but it is the same for anything really. The best indicator and my favorite is the DMI. Composed of three lines. The ADX line, which is kind of the slow one and two fast lines, that are labeled D- and D+ One of the D's is going up when it goes up, both D's go up when working as a signal. Only one can go up at a time in a trend. Usually when they cross over each other, that is the signal to jump in a trend that might have started already, but had not yet broke out. The trend can be up or down, but the D line effected will go up. Once they cross over, the pressure of buying or selling will increase and your premiums balloon. What you do is if you have a strong looking= cross over, of D lines, you enter LONG option purchase. This line goes up and hold your bet until it curves over and crosses the slower rising ADX line. That is usually the meat in the bun, or the volatility, or premium ballooning and all you are going to get. The price may still rise, in the stock, index or whatever. This is the middle of the trend where the profit is made. You often get the price still going up, but if you check carefully, the volume is dropping, the speed and amount of movement is declining and the premiums are deflating rapidly. You can wait for ever and see your price rise by increments, and still lose in options once the D line crosses the ADX. Because like a leaky balloon, the premium starts deflating. This is the chunk out of the middle of the trend where you make your profit. It is all about price acceleration and premium, or price ballooning. Just a tip for novices. The second thing at least in the OEX is that the time frame should be the daily bars on a monthly, or three monthly chart. The DMI operates on all time frames, 1 hour, 15 min. 1 min and so forth. But the moves in the smaller time frames are not enough to cover the costs of the market maker spread between bid and ask, plus the commissions. The DMI only works strong enough on the daily, end of day, data bars.
You have a great gut feel for the markets. I was just discussing yesterday with a colleague that the next options modeling frontier is the vol path. There was a while in the early 80's when basic vol wasn't understood. Then people lacked a framework for delta neutral trading, then skew modeling, then calendar vols, and now...vol path. As the market moves down, the vol goes up, and conversely it drops as the market moves up. However, both the velocity and continuation of the move seem to matter. For instance, as the market makes a less than one st. dev. move up vol collapses. Another inside move and vol is down again, etc., THEN if the market follows through with a more than one st. dev. move up the vol will EXPLODE. IV's have to do with 1)historical vols, 2)stock price compared to historical IV's around the same price and 3) how the stock made its way to that price. ##'s 1) and 2) are well understood in the business, whereas noone seems to have been able to create a model for #3), nor have they been able to adjust their vol path modeling to define how the vol might move from that spot. I was explaining a few months back that one of my favorite speculative bets is to wait for a 2 to 3 day slow move upwards, with a collapsed vol. I then buy in the 10 to 12 delta calls, delta neutral. If the market continiues up, the vol will explode, AND if the market turns around and goes down, the vol will explode.
Leveraged and inverse ETF's lose money over time in an oscilating market. Google "leveraged etf decay" and you will find a few articles on it. There has also been many discussions on this board about it. I would add though, that the wing risk of these etf's in a trending market is magnified. Thus the etf's don't always decay, just usually. In this way, there is some optionality in these products.
Jerkstore What you write about, I have as bar patterns. Back before computer trading, there was a method called MARKET PROFILE. I write and print up these little booklets and keep them around in my reference library. Market Profile is one system I constantly use. Actually, I no longer have to reference them, but just recognize what the market is doing from the daily bar. More or less! ( grin ) There are nine possible combinations of the daily bar, OPEN, HIGH, Low and CLOSE. Since it is a pictoral display, I cannot really explain it. These single bar patterns give you descriptions of short term trend change, a continuation of the trend, a climber type bar signal, a drifter or undecided bar and a trend slowing - ending near. Later in life along came the popularity of Japanese Candlestick charting, which sort of was a different picture representation of MARKET PROFILE bar reading, but also included volume. Nowadays computer indicators give similar data. The thing with computer indicators, the last three to four bars are in constant change as the future day unfolds. Self adjusting. So for predictive qualities, computer indicators are worthless. THE DMI computer indicator however expresses the trend in progress ( up or down ) and gives you both a beginning and an exit for the high volatility money making part of the trend. For option premium traders this is priceless in LONG OPTION buying, of PUTS or CALLS.