Discussion in 'Options' started by lukek83, Jan 24, 2008.
I was wondering, would it be possible and worthwhile to day trade options?
I don't think so, the bid/ask could be a problem. Any stock in mind?
The bid/ask spread in hundreds of books is a penny or 4 much of the time.
Well in December I began trading MA calls, where I would take a position but close it out before days end. I made a good profit in December, but a poor decision in Jan set me back a bit. So now I am taking the time to try to understand if even day trading options is possible. I would like to continue to trade on MA if possible.
Most of the spreads are usually not too far apart. When I did trade them, I would usually end my position +1.00 or more per contract.
Call me a noob or whatever, but I actually came here to hopefully learn some insight. I won't post my jan shot, as it is embarassing, however I did learn some points from that mistake, and I only play with money that wont make me go broke.
In general, options are not designed for daytrading due to wider bid/ask spreads and low liquidity. However, penny spreads are starting to make it viable.
Commissions are considerably higher for options also, lessening their appeal for intra-day trading.
1) You'd have to limit yourself to only trading the most active stocks and indices in order to minimize slippage.
2) You'd have to be highly cognizant of the "greeks" in addition to price movement.
3) You may be able to "reduce" your fees by trading through a firm that has flat commission rates.
4) It's something you'd have to work "harder" at compared to daytrading the underlying.
I started recently to daytrade ES options. In that time, I have found the good and bad in daytrading options - ES options anyways.
The bad is obviuosly the b/a spreads. ES traded almost 24 hours a day, so you can trade its options, but the spread is going to be huge, but after about 7:30am CT it does get tigher and as you get closer to market open and throughout the day, the spreads to get pretty tight (usually under 1-1.25) and you can try to play the mid or whatever. It also deeps on which strike you are trading, real deep ITM options have wide spreads, but as you get closer to the money to OTM, the spreads are tigher because of more players/liquidity.
The good, I think I can control my risk better. I have been trading options with 20-30 deltas. This morning, I bought the Feb 1290 Put (when ES was trading 1367), the put had a 21 delta. I put a 2 point stop. For that 2 point stop to get triggered, ES would have had to rally about 10 handles. If a position goes against you 10 handles, you know that trade was a loser, but instead of losing $500/contract, you would lose only $100.
On the other side, of the coin, if you were right and ES did drop 10 handles, you would make only 2 handles (you could make more money as the options went further ITM and your delta increased).
So, there are pros and cons to daytrading options. But with someone with a small account size, can still dabble in the markets, and be wrong with the direction and not have your account blown up.
Sorry for the long post. I hope that all made sense.
I think for now the in general wider spreads, commissions and the delta of most options means you dont get your bang for your buck with options with respect to daytrading like you do with futures and the stocks outright.
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