Question to options traders

Discussion in 'Options' started by Ates, May 20, 2019.

  1. Basic strategt
    Buy call : you are long now
    Buy puts : you are short now
    Wait the stock move fast in a direction and close the wrong trade

    Your risk= premium of the wrong trade

    If the stock went side ways you lost both premiums
     
    #21     Jun 22, 2019
  2. MarkBrown

    MarkBrown

    you have to take time into consideration as you wait for the stock to move the values of your bought options is deteriorating fast and cementing the profits i get to keep when i sold you those options. giving you hope that the explosive move you have been waiting for will make you profitable when in fact there will be little value left and you still will lose all the cot of the other side of the trade that you lost.

    i tell you the truth option buying is a fools way to lose money more slowly and enrich the clearing firm while doing it.
     
    #22     Jun 22, 2019
  3. Wheezooo

    Wheezooo

    Oddly, each of the most dominant option trading firms on the floor, in my day, had policies prohibiting their traders from being net short options. Policies that a violation of led to immediate termination. Each of the firms I am thinking about were freakishly profitable and turned into massive derivative trading groups.
     
    #23     Jun 22, 2019
  4. MarkBrown

    MarkBrown

    those firms you are talking about made all their money off commissions

    option buyers are lotto ticket buyers and option sellers are lotto pool operators

    all educational materials for options are geared towards giving hope to option buyers

    the industry and exchanges make the entry level nearly impossible for option sellers

    billionaires everywhere get up each morning and sell options expecting to never lose

    nothing will ever change the greed of the poor blinds them to improbability of option buying success
     
    #24     Jun 22, 2019
    You likes this.
  5. ironchef

    ironchef

    Option buyers are like venture capitalists. :D

    Actually all educational materials for options are geared towards selling options to "generate free income".
     
    #25     Jun 23, 2019
    DTB2 and zenoftrading like this.
  6. are you talking about short term contacts? if yes, then i agree with yout.
    I am talking about long term options where growth companies can move and profit can happen.
     
    #26     Jun 24, 2019
  7. MarkBrown

    MarkBrown

    typically on this forum people are day trading them or less than monthly.

    i think your talking more about an investment vehicle?
     
    #27     Jun 24, 2019
  8. You

    You

    Like somebody else here, I'm also a noob, but doing average (not consistently losing), only buying options on SPY. I usually buy only one side, and only buy both sides (Straddle) if I'm unsure of direction but expect either direction to be >3x my investment.

    I only trade options <3 days from expiration so I couldn't tell you how far I'd buy, if I felt the price was going down over that duration, but let me share what I'd do as it applies to shorter expirations.

    For starters, you never have to wait for expiration to close a BUY/SELL position. I never do and open close BUYING trades after holding them for 30min - 3hrs.
    Buying, I never wait. Always close well before.
    Selling, it doesn't matter. It's usually more profitable the closer you get to expiration.

    In my world of buying under such short expiration times, prices can reverse on me fast. I never try to squeeze an extra 5%-10% more profit.

    How do I pick which option?
    The shorter the time left to expiration,
    - the closer to ATM strike (from OTM) or deeper ITM
    - the shorter the time I hold it

    The more time left,
    - the deeper OTM I chose.


    If you think the move will take a week, I might buy perhaps 3-5 weeks out.
    Again, I'm no expert here.


    When SPY reverses on you and your option price drops, then SPY returns to the SAME position, your option price will be LESS. You think you would be breaking even, but you won't. Price now has to return back more in your expected direction to break even.

    The further OTM you are, the more dramatic this is.
    The closer to ATM, the less dramatic, the more it matches SPY.
    (I rarely trade ITM, so I don't know how it is there for longer expirations)


    Being correct in direction is extremely important when buying options alone, not in a combo.

    The tighter the expiration, the more sensitive your option will be to SPY movements.
    The further out from expiration, the less sensitive, but the less % profit you'll make.


    Volatility is important too.
    If SPY slopes in the direction you want, but the slope will be smaller than the recent slope, you can lose money buying. If SPY flat-lines, you lose money buying too. These times are best for selling Puts and Calls.


    I'm no expert in the long expirations you are looking for, but if bought 2-3 weeks out, I'd only hold it for a week. I may even hold it for a few days because time eats into the price too much. Me, I would always close it before 7 days left.


    Something else,
    I usually don't enter a trade if ~25% of it has already begun.

    In your chart example, to me, it feels like it's borderline. It's likely already moved too much and isn't worth the risk.

    Option prices don't move linear to SPY. They're more dramatic. Big moves at the start of SPY movements, and big moves at the end. Price doesn't move as dramatically in the middle. If you enter too late, you're screwed. Option prices are not at a bargain half way through the move. You might make a little, break even, but more likely you'll lose money because price drops fast at the end.

    It's not like stocks were if you entered a trade at 50% of the move, you'd could make ~50% of the total if you bought at the start. In options, if bought at 50% of the move, you would be closer to <20% of the total if you bought at the start. Add in the spread, and the spread widening at the end, you're screwed.

    A key to being profitable when buying, is entering the trade when it's "quiet" before the storm.

    How dramatic all this is, depends on how far ITM/ATM/OTM and expiration time left.
     
    Last edited: Jul 13, 2019
    #28     Jul 13, 2019
  9. ironchef

    ironchef

    Maybe you should consider trading options > 3 days from expiration, less noisy. But, I am a newbie too, so borrow a phrase from my mentor @murray t turtle: NOT A PREDICTION. :D:D:D:cool::cool::cool:
     
    #29     Jul 15, 2019
  10. Amahrix

    Amahrix

    The fools are tail risk sellers, Mark Brown does not understand options.
     
    #30     Jul 15, 2019
    Bum and VixTraderdf like this.