What are your favorite Stock (not Index) options to trade that closely track the Dow; S&P; NAZ. I realize there are actual index options, but options like the Q's don't move all that much, so one alternative might be to trade a more volatile equity's options instead. The DJX's have terrible spreads and only trade in Chicago. But there might be equity options out there that have tighter spreads/trade on more exchanges that could be used as a proxy for the DJX's. And so forth for the S&P index options. I realize equity options aren't 60/40, but I think some of the problems listed above may more than offset any favorable tax treatment of index options. Thanks MUCH.
I like options on DIA. My experience is that options on DIA have a little better spreads than DJX's. There is no options on SPY. But if you think S&P100 moves close to S&P500's you may try options on OEF but the spreads are much worse than OEX's. Options on QQQ have much higher volatility than the other two. I don't know what you refer to when you say "options like the Q's don't move all that much".
I have to agree about options on the Q's. The liquidity is great provided you're trading the correct strike. Its possible to buy at the bid and sell at the ask all day long if you pick your spots. I know you excluded index options but for my money the OEX is what's happenin'. I know the spreads are horrible but you can make a buck here.
You can say the Q's move more than the Dow options. Please explain, because from my perspective, this is just not true. For example, today: The just out othe money 87 DJX call had a Low of .85 and a High of 1.25. A .40 daily move. On the otherhand, the just out of the money 29 QAV call had a Low of .35 and a high of .45. A .10 move. And the ATM 28 QAV call had a low of .70 and a High of .95. A .25 move. And from a more basic perspective, the QQQ doesn't move as many points up or down per day as does the DIA, so neither would/do it's options. [Edited to include today's EOD highs and lows and to remove some other comments I felt uncomfortable with.]
All ATMs have deltas around .5. If one underlying only moves one half as much per day as does another underlying, then it's ATM's will, in general, move less per day percentage wise or point wise. The percentages from my example: QAV .25/.70 = 36%. Or .10/.35 = 29%. DJX .40/.85 = 47%. Furthermore, because option commissions are actually a significant amount and the more options you buy/sell the more spreads you pay, a percentage wise comparison is much harder to make with options than it is with more "efficient" securities.
I agree. It's about use of your capital. One DIA option's margin is about three QQQ options' margin. You can get more tick movement from 3 QQQ options than one DIA option.
The margin requirements for all option buys are the same. Even as a PERCENTAGE of price, the daily range of Dow options appears higher than that of the QQQ options. If you disagree, please provide an example (I provided three). Thank you.
We have to pay full price without any margin when buying options. What I was saying about margin was that when we sell options, the margin is either 10% of underlying or 20% of underlying minus out of the money (plus all sales proceeds). Since the DIA is a little over three times of QQQ, the margin for selling one DIA option is about selling three QQQ options'. As for your example, I would not use ratio of low to high. I would use following formula to calculate percentage movement: (High - Low ) / mid point of high and low. That will give us 95%, 111% for QQQ and 72% for the DIA.
The daily price range (high/low) in an option is of no significance at all. It says nothing. The market in the option moves around, whether there is a trade or not, so the low print might not be the intraday low in the option. A useful proxy to see whether a bid/ask spread is good: take the difference of bid and ask and divide by the option's vega. This gives you a measure of how many vol points wide the market is. When you compare the spreads on options with different underlyings, you have to consider each option's vega. A 0.50 delta option in the OEX will have considerably more vega than a 0.50 delta option in the DIA, and there's even less vega in a 0.50 delta QQQ option.