from my own experience i conclude that even for spreads u can still lose or in your case leave money on the table, it all depends on guessing correctly what when is to happen, there is no one is better than the other it all depends on how the situation pans out
Hey I'm feeling famous, Mark quoted me on his website : http://blog.mdwoptions.com/options_for_rookies/ The quote is a little misleading though as I personally don't enter trades using a fixed amount per trade as my trades have different timelines and reasons for entering. And if I am going naked on a position and holding for 3 months or more, I will actually put less $ at risk than if I was putting on a spread beacuse I know that if I am right on the trade, the potential for profit is greater.
I meant to say then don't have changing delta, i.e., they lack gamma. Thanks for the correction. Mark
Sorry - I was not clearer in my post. I did not mean to suggest it was your quote. It was part of the discussion that followed your original comment. Mark
I can accept what you say. And the fact that I find it difficult to believe that professional, directional traders - those who trade SIZE - look at options as a method of replicating stock positions - does not make what you say less true. I am merely surprised. If you look at your comments from my perspective, I thought you were an experienced stock trader who was new to the options world. Best regards, Mark
LOL..... Mark,thruth be told,I am an experienced derivative trader desparately trying to break my "bad habits" from years of working in large investment banks and escape my natural "hedgers" mentality and become a "directional" trader... As we all know,the vast majority of the supposed big dogs at IB's are not all they are reputed to be. I think I may have clouded the issue by using the word "replicating"... In my eyes,if one wants to go long a stock,there are several ways one can do so.Buy the stock,Buy an option,buy a spread,sell a bullish option/spread. Before I do any of that,I always start at how much capital I will risk per trade.I like to limit it to 2%.I then go thru the simple position sizing calculation looking at ATR and come up with a number of shares to buy and the appropriate stop.Typically,I will exit a position before being stopped.. This is always my starting point,and once I know the size of the stock position and risk level,I look to possibly "favorably" replicate it thru options..... I dont see how one would not create an option position without an apx delta to the stock position I may possibly trade.I am aware of the gamma implication,and at all times I am aware of the effect of theta and vega.If the stock doesnt move,and I lose x dollars in Theta,or vol gets hit,there is a good chance I will stop myself out and move on.. This is why I say,that one should not compare a stock postion with a .6 call vs a .2 option spread....For 1 share of stock,you need apx 1.5 options with a .6 delta,and 5 spreads with a .2 delta. Think of it as you are a block trader on an equity desk.If a client smacks your bid on 100,000 shares,to be delta flat,you would sell an apx 100,000 deltas.Same thing if I am directional.Apples to apples. I trade in this fashion as I believe in a systematised approach to trading.If not,one is betting that they are a very talented seat of the pants trader which very few traders are.Notice I am not saying to trade systems.But AI do believe one must be systematised..Every talented trader I have met has a very clear method to his madness.. Ild be curious to hear how you allocate your capital to trade(directionally)and what your starting point is.. Tao