Hello, Does anyone on this board successfully use long option for directional trading? If so, how would one go about doing it? Thanks
Yes. I use deep in the money calls on broad-based, liquid ETFs. Long only. Bid-ask spreads are not good on long-dated, ITM options--it is better to use the front month and keep rolling them if you wish to stay in the trade. If you go deep enough, there is essentially no vega or theta (volatility and time decay do not affect your trade). For me, the appeal of this method is that it requires no short options so I can "hide" my profits from the IRS in my Roth IRA. If you want to use a less liquid underlying (again here I refer to long only, although you could also short this way), you will have more luck with ATM synthetics because there is more liquidity there. But for those you need a margin account and you need to be prepared to have the underlying put to you if things do not go your way, so it takes a bit of capital. You may wish to use a fairly small portion of your capital to do this. Occasionally you will have a really terrible month (-50% or -60%) so you don't want to make too large a dent or make yourself unable or afraid to come back the next month and put the same type of trade on. This is a probabilities game that requires consistency on your part. There is an interesting book along these lines by Tristan Yates. Oddly, he does not even bother trying to select the underlying: he just explores several methods for perpetually leveraging returns on US stock indexes, relying on the fact that over time, broad stock indexes tend to rise. With this type of trading, money management is everything. By using the same small percentage of your account every month, you can make good money if you are consistent and if you can pick direction. FWIW, Larry McMillan describes this in his chapter on call buying and enshrines it in the closing comments of his book as one of the optimal options strategies: using 5% to 15% of your account to buy calls and the rest to buy T-bills. Best of luck and let me know if it works out for you.
I'm the "old school" and mostly rely on news and RSI indicator when trading. You can easily find the news like "Google loses most US Search Share Since 2009" and watch how the stock will react at the market opening. Russian assets are also very popular now to trade with - Gazprom, Sberbank, RTSi. If you do not feel confident enough to analyse news and/or follow trends yourself, there are sources where you can simply copy the professional trades like lookuse.com They often make free live trading sessions. The nearest one will be on next Monday, by the way.