I know there are some options traders on the forum that crush it in trading. I tried trading options for years, and was average to below average at it. I trade futures now and am good to very good at it... and am content with just trading futures. My question is... What types of strategies are the successful options traders on this forum using? Don't want specifics, I don't want your system or formula... just some general info. Are you generally net sellers, and just hedge? I've just never really thought you can make much more than 20% per year, unless you take on significant risk and blow up once every 6 years or so. ( I could be completely wrong )
I only "buy" puts and calls and trade directionally. "Not" among the top traders on ET but, I consider myself a competent options directional trader. Winning 40% and losing 60% of the time. Average win 2 times the average loss. I think a good options trader can make more than 20% per year. Not all trades are winners but, I have had trades where I got 100% or more in 3 days. I tend to sell too soon. Also, I spend profits I make in the stockmarket. Returns of 30%-50% per trade are common. Occasionally, windfall profits come at times and you can make 200-400% on those trades. Sometimes, even more.
That's kind of what I was doing. I feel if you can time options trades (trade directionally) then adapting to futures is easier. Trading options directionally is a hell of a skill.
What matters more is keeping the losses small. You can have a lot of small losses. I am not bothered by those small losses. It is the big losses that eats up any profits you have made! All you need is a couple of good sized winning trades to wipe out all those small losses.
I appreciate the feedback. I'm not going to trade options again probably for a while, I'm sticking with futures and refining what I am good at. Just want to hear from the guys making money what they are doing in the most general of terms as it relates to options. Thanks for your feedback.
It's less about specific strategies than how they're used. Without doubt, the biggest returns will come from long calls and long puts. And the most consistent will come from short straddles / or strangles (Well, actually a box....but that pretty much makes you a market maker). But as small fill says, controlling losses is huge (both up front and on the back end). Get your commissions down and figure out how not to pay spreads. Beyond that, juicing your winners is another very important thing--making sure you keep rolling and keeping exposure and profit. This year, the majority of my profits has come from getting massive delta positions after building in and riding the middle of breakouts like that.
I plan on doing some brainstorming over the coming months and conjure up some sort of system. Testing systems with options is quite tedious. There is this nauseating feeling when you test for a couple hours...that feeling arises quicker when I’m backteating with options.
Why would you wan't to add unnecessary risk to a directional trade? To start, gamma is usually over priced. "If you wan't delta trade the underlying" ~ a successful options trader. Taking a view on both direction and vol and being successful at it would put you in the top tier of traders on this board (I am not saying you aren't, in fact I would love to learn more about your strat). Take my advice with a grain of salt as I am at the bottom of the barrel. Trading options is about buying "cheap" vol and selling "rich" vol. This could be as simple as: same asset same cycle - like what @destriero (highly recommend you read his vol journals) to a more advanced cross asset different cycles like what @sle does/did RIP (also recommend reading his 191 pages of posts). Deciding what is rich and cheap is where the gold lies. "There are many ways to skin this cat" ~ Sle.