I am just wondering why most prop firms don't do option trading? If it were true option trading is more profitable, why prop traders are not doing it?
I believe the answer is : 1- Option is more long term and most traders in prop firm don't hold any position overnight because of high leverage 2- You can not buy option on margin and considering high leverage on stocks in pro firms, a trader can get the same profit as options 3- The slippage in option is more than stocks. 4- Stock may change more than a few cents but option won't change unless you are trading very in deep the money options that have almost zero slippage.
There are many prop firms that trade options. Use the search function in the upper right hand corner.
I don't think Bright offers options, but if he wanted to chime in here that would be welcomed. Mostly, I would guess its probably because most of the firms generate a portion of their fees from transactions and there are times where several days go buy and I'm not making any of the necessary adjustments, (raw delta hedge, adjusting wing risk, changing forward vol perspective...ect..) so while these are generally very profitable days, they are also without fee income for my broker. Secondarily, even listed options are considered complex instruments, and if a trader starts using a complex multi-expiration multi-insturment hedged book, it is probably a bit beyond what most of their risk managers have experience working with and so because of the non-linear aspect of options, it would be more difficult for these small shops to understand their net risk. Not impossible, just more difficult. I really wish there were more firms out there which backed experienced options traders. It could simply be that experienced option traders are in short supply.
Quote from hajimow: I believe the answer is : 1- Option is more long term and most traders in prop firm don't hold any position overnight because of high leverage Options can be traded as actively as any other instrument. You can scalp reasonably liquid options (who would want to?) or stocks. 2- You can not buy option on margin and considering high leverage on stocks in pro firms, a trader can get the same profit as options Options are already leveraged. 3- The slippage in option is more than stocks. If you are talking about an option on the same stock, probably. But is mostly is a function of how liquid the stock or option is. An illiquid stock will experience more slippage than a liquid stock. 4- Stock may change more than a few cents but option won't change unless you are trading very in deep the money options that have almost zero slippage. Many options are actively traded, and change price as much as anything else.