Disclaimer: Terribly sorry if I may profer some nonsense, just trying to humbly understanding Most important: 1)Shorting As far as I know using the following strategies I can get more granular control (upside risk,downside, leverage etc) than shorting stocks: Long Put Long Put Vertical Short Call Short Call Vertical What is the use case that an experienced retail option trader would prefer to short instead of using one of the above Swiss tools strategies? As bonus and you got rich playing the other James Joseph Cramer side: 2) Future An experienced chap can use future options on SPY, in the use case of pure scalping/aggressive speculation(NOT HEDGING) why should prefer to trade the classical MES if learned do wonders using options? 3) Market makers woodoo: I read always the story that to short a stock one needs in practice to borrow some existing stock etc..In fact IBKR pays an amount for people that borrow stocks for this purpose as far as I know. My question is: is technically possible that a broker may process and fill my request for a short position but under the hood is going just to use an option strategy instead, in this case technically I am not going to incurr in the uptick rule right?
I'll have to give this some thought, but off the cuff, I can think of at least one reason someone would short a stock or ETF instead of using options. The options may not have enough volume. Bid/ask spreads may be far too wide. Even if you can establish the position at the price you want, you may not be able to exit the position at reasonable prices when you want. You could get stuck holding the position to expiration, or you could get forced to exit at very unfavorable prices. The stock, on the other hand, may have sufficient volume and liquidity that you can get out whenever you want, with only a minimal bid/ask spread. It is not unusual to see high volume in the stock but very low volume in the options. Moreover, any options position that you establish is eventually going to reach expiration. At that point, if you want to stay short, you either have to roll the options out to another expiration, or allow an exercise or assignment to take place, which will convert your position into short stock. I don't think a broker could do that legally, at least not in a traditional retail brokerage account located in the USA. If they did, they would effectively be "taking the other side" of your position. That might not be illegal in and of itself, but I don't see how they could display a short stock position in your account if you did not actually borrow and sell the shares. That would be flat-out false information on your account statement. When you place an order to sell a stock short, someone--the counterparty--is actually buying the shares. And that guy might be planning to hold the shares indefinitely, as a long-term investment. That means they have the right to vote and collect dividends. Some companies still offer a program for direct reinvestment of dividends, and the buyer could choose to enroll in such a program. And some companies still have a mechanism for issuing a paper stock certificate on request. None of that is available with a options position. The P&L chart might be the same--if there is no dividend before the expiration date--but the legal rights associated with owning stock are very different from an options position. The broker has to find shares that you can borrow and sell.
1) Adding to what @BMK said, some stocks don't have options. If you want a short position on one of these, you have no other choices.
1. You don't have a view on the other aspects of those swiss army tool strategies (like vol, timing, etc). 2. I don't understand this question 3. No. You put an order to short stock and the broker executes that under the rules required for that facilitation. The market maker on the other side, might be hedging an option but that doesn't change the fact you will be subject to the uptick rule (or bid test rule).
Future market is well known for a series of advantages as less manipulation, ability to easy short, super liquid. The point is that there are also `options on futures`, I was wondering when options veterans deem better to use the `options on futures` instead of the `futures` (as for instance the E-Mini or the Micro SP500)
same reason to use options over stocks: view on volatility or implicit leverage (though that’s not a real benefit in futures)
I have traded options for years, and futures for about a year precisely because of my interest in options on futures. If you haven't traded futures and truly understand futures contracts, settlement, and expiration I would not recommend trading options on futures. A year later I still do not have the confidence to begin trading options on futures. Futures contracts are very complex. Trading options on top of those complex contracts, you really need to know them both, inside and out, especially if you understand the behavior of options leading into expiration days and weeks. Future contracts, especially across sectors, are not standardized, they are all different, and each future and options contract is its own animal. Some futures settle financially, some settle with physical deliveries. Futures contracts can be monthly, quarterly, and a combination of seemingly strange months. Their respective options will be attached to 1 specific futures contract. Some expire in the morning, some at noon, some at the end of the day, some settle based on prior day prices. Option contracts will react to these events and some options contracts will settle to the underlying futures contract, and that may or may not be physically deliverable. Basically the complexity goes through the roof. You should really take some time as I am doing and gain experience trading futures contracts directly, before trading options on futures. The reason you would choose options on futures is because of the lack of no pattern day trading rule with real brokers if you have a small account of at least $2,000. Equities options you require a $25k account if you want a margin account, otherwise you are better off in a cash account. The reason to chose future options OVER futures, is the same as choosing it over stocks. With futures you can lose much more than you planned. Having to use stop losses leaves you open to stop loss hunting. With options you know your risk and don't need stop losses. You can hedge. That and even more leverage. But you have the same downsides if you are buying, time and premium decay, etc. Basically after trading futures and getting somewhat proficient with them, I really don't have the same interest in options on futures that I did when I was originally an options trader. The complexity is a lot to keep up with. Futures are great and liquidity is excellent and you can achieve day trading consistency with futures that you realistically can't with options. So you may also find out after trading futures for awhile that they are just great on their own, and no longer need to even bother with options on futures. But, definitely an entirely different risk profile. If you like YOLO-ins options on thursdays and fridays, you'll miss that since you should never do it on futures...probably. I mean with futures, you can do it every day, no need to wait for thursdays and fridays, and the truth is you do really only live once! Just have your move out of the country plane ticket ready for when the brokers come calling because you owe them money. I hope my sarcasm is detected here. Or do what I did. Start with predatory prop firms that will slice and dice you every which way before you grow up and realize which way is up and which way is down and which ones are a good fit for what you want to achieve. But would still definitely recommend this over trading futures with your real money when you first start out. If you're interested for the point of getting exposure to different futures products so you can then trade options on futures later, I recommend starting on Apex(and I think Elite Trader Funding also) since they give you access to everything from equities, agriculture, metals, even forex and crypto and they often have 80% off evaluations. But if you actually want to get paid and not degenerate into a gambler with terrible futures trading habits, then avoid those with payouts structured like Apex, and try Earn2Trade or UProfit since they are the only ones that offer programs which structure you, pay you while you trade and get to keep your drawdown (even if you withdraw your profit!), as opposed to the other prop firms which amounts to you paying them to work for free and be stuck in an evaluation-bust hell loop bleeding monthly fees for a long time before you can withdraw any significant amount of money. But in the case of Earn2Trade you will have to pick just one exchange unless you want to fork out additional data fees. So it really pays to take some time, do research and understand the programs and structure before jumping in.