Please do NOT participate if you are only trading options intraday... This poll / discussion seeks to look gather the views of swing / position traders...
Had to vote "other". It's the Iron Condor for me. An IC on the OEX (XEO, actually) is a position I have on month in and month out, with a variety of long calls/puts on select individual names as a gamma/vega hedge and dispersion play. IC's, at least the way I trade them, are high probability/positive expectancy trades with reasonable risk:reward profiles. Plus, I've traded them long enough to know that, if traded "correctly", they can work in virtually any market environment, including (surprisingly) rising vol and trending markets. Like any other option strategy, one just needs to know when to put them on, how and when to adjust and when NOT to adjust, and to apply disciplined risk management to the positions. Easier said than done, I know.
I note a few people voted for naked call / put and short straddle / strangle... anyone who voted for these ever had their ass whipped bigtime on these plays?
The stock market has been going up in the past 12 months. I was burnt several times by writing uncovered calls. Now, I only employ the above strategies for options on ETF. Credit spreads on OEX options is another possibility, but I am just too lazy: it is 100% more difficult to enter a spread order than an ordinary option trade to sell a put or a call.
Once upon a time I started w/ buku naked positions - in a market that really paid off. (Like collapse of airline stocks last year.) Fortunately I listened to experience and transitioned to spreading the indices. I'm not so conceited as to think I'll always be so right or so lucky selling naked - have read enough sobering stories to recognize otherwise. As they say, a smart man learns from his mistakes, a wise man learns from other's mistakes. Now I'll put on just about anything. This is a self-limiting mistake many options traders make - that of falling in love with a particular type of position, whether they be spreads, ICs, butterflys, etc. IMO, that is putting the cart before the horse. Better to clarify my view of what the underlying is going to do, and then identify the risk/reward that I wish to gain exposure to. Options are a tremenous tool for tailoring that risk/reward exposure to any number of scenarios. I voted spreads because they is my most common position type.
Bluehorseshoe, While I appreciate your comments, I have to take exception to a couple of your points. First, I think you're rather offbase with your disparagement of those who "fall in love" with a particular options strategy (though I agree one should reserve such affection for one's spouse, children, dog, country, etc.). There is nothing wrong whatsoever with having a "bread and butter" options strategy. Of course one should act in such a way so as to best exploit one's market view. But, as I pointed out, certain types of positions work well in virtually any market environment with the provisos contained in my previous post. But, even if you disagree with that statement, I think you'd be hardpressed to convince anyone here that there was something wrong with a trader simply trading a given strategy with which s/he is comfortable when the appropriate market condition arises. That would be akin to telling an equities trader that s/he should trade a variety of different systems as opposed to developing a single trading system that provides for strictly limited entry and exit signals based on a positive expectancy. I would further argue that options are great not because, as you suggested, there is a wide variety of opening positions available, but rather because of the myriad synthetic relationships and almost limitless adjustments one can make to any base position. Where is it written that a particular position once establsihed had to be static for the life of the options? The point is, it's not so much the strategy that matters, but how you trade it that counts. I would also point out that there are plenty of options traders that have made bundles sticking to one or two strategies and trading them well. Hence, I think your statement is empirically wrong. At the same time, I think one of the worst mistakes novice options traders make is to dabble in a variety of strategies without fully understanding any of them. That's a certain recipe for a short career trading options, in my opinion. That having been said, I'm not so bold as to tell another trader how or how not to trade. So, if you've been successful trading the entire handbook, then you are to be commended. I for one prefer taking a narrower route, sticking to my knitting, so to speak. To each his own, I guess. HD
Mr. Dollars, I don't disagree w/ you - your several points are valid. The point I was trying to make most closely relates to your statement: "a trader simply trading a given strategy with which s/he is comfortable when the appropriate market condition arises. " Pulling money out of the market consistently is extremely difficult and if one can do so by focusing on one strategy then they have achieved something. However, someone (I believe in Market Wizards??) once said the biggest losing trades are the winners that weren't taken. My point is that a good trader that limits him/herself to a single strategy by definition leaves money on the table because the best opportunities in the given market may in fact not best be captured by that strategy. For a hypothetical example, suppose I am certain that Sina.com is going up 200% over the next several months, but I only sell credit spreads. Yes, I can be quite profitable selling credit spreads on SINA, but in my view these in fact would be losing trades because I have not captured the full benefit of my read on the move in SINA. I know we are talking about options but consider another related example. Suppose a trader only trades NQ/ES strategies but suddenly realizes that SARS is sweeping through Guangdong Province and that the HangSeng is going to sell off hard for the next few months. That trader has already lost because they've limited themselves. I too have mastered a couple of strategies that consistently put food on the table. But I'm not in this to put food on the table. Thus, I continually pay tuition, expanding my horizons, waiting and looking for the next outlier event or insight that will separate the good traders from the great. I firmly believe it is more difficult to be a great trader if one is limited by instrument, strategy, capital, biases, etc. etc. But I also recognize that not all traders aim to hit a home run, and that many good traders cannot sustain profitability without self or externally imposed limitations. Suffice to say, limitations are not for me. Blue
Blue, Fair enough. Your points are well taken and I agree with much of what you've said. The only point I would add in response is that I believe it is perfectly valid to have as one's objective to consistently hit singles or doubles as opposed to going for the fences with more attendant strike outs (Wade Boggs vs. Dave Kingman, as it were). That said, even limited risk/limited reward options strategies can present extremely attractive ROI opportunitiess (my IC's, for example, generally return about 100% in 3-4 weeks at max profit). Still, I agree that in the wrong hands or applied to the wrong instruments or at the wrong times, such strategies can and will lose. But the converse is true as well, and I, for one, would rather forego additional profits for the greater probability of generating a somewhat smaller, but still attractive, reward consistently over time. After all, to use a trite, though correct, axiom, this is a marathon not a sprint, is it not? In any event, I appreciate the exchange and wish you luck in your trading regardless of the methodology. Regards, HD
Yes, I lost 1600% once and about 400% quite a few times. I just don't risk too much per trade. I have all month to establish positions in different stocks, and if in the end 30 of them expire worthless and one hits me big time, I can live with that.
Well said. Trading is a business. I plan to remain in this profession for decades to come. For safety sake, I closed all positions that were not related to QQQ six weeks ago. QQQ can never drop to zero, but individual company can go bankrupt. If I short one contract of QQQ or DIA put, and is assigned to buy 100 shares of the ETF, theoretically I can recover all the loss by writing one contract of covered call repeatedly. In practice, I do NOT have infinite patience and funding. Hence, I'll act differently. Just my too cents.