Hello, (My apologies for the length) I am new to the forum and I would like know what some of you think about long option strategies. Do you ever use options for pure speculative trading ideas? I am looking for some feedback about any long term success others have had trading long. Besides the obvious inherit dangers of this, or any other option strategy for that matter, the idea of an uncapped roof with much more leverage capability compared to individual stocks can be very appealing for the short term or long term trader. The dangers such as losing your entire premium and the factors of time and volatility decay are the prime suspects working against you in this style of trading. However, we know that the market is unpredictable; stocks will rise and fall far enough to create opportunities. Without actually doing many live trades, I have considered and studied them for over 2 years, and I have back tested hundreds of trading scenarios such as: straight call or put buying, out-of-the money, in-the-money, and at-the-money pure plays to straddles and strangles. I have reviewed strips and straps, near parity trades, as well as using positively and negatively correlated funds to trade modified long strategies. In all this time I am still yet to develop or discover a long strategy that has proven to be consistently profitable but I still believe there is one if carefully planned and applied correctly. Does anyone share my interest in long option strategies? Thanks, WAR EAGLE
Sure, I sometimes buy a straight call or put. There is often a virtue to simplicity. Of course you have to be good at judging direction and timing for this to work. I bought some SPY puts yesterday, sold them this morning at a profit, and as usual, sold too soon as the market is continuing to go down.
I use options only and trade oil, gold and sometimes grains. If you are wrong about market direction, you'll know shortly after initiating the trade (<5 days) & can sell them before the rapid decay of time value occurs. If I have accurately anticipated market direction, my options gain in value at a slower rate than the underlying future. I am willing to accept that in exchange for the limited risk that options provide.
Yes, if you want to make a directional trade buying outright is like having a built in scaled stop thanks to delta. Depending on when you think the move is going to happen or how long you plan on holding go out a couple months so theta doesn't eat you up. The downside is liquidity and wide spreads depending on what you are trading. If you are holding CL options and want to get out after hours you're pretty much screwed. If you have been researching this you already know this. You still have to be right and know when you are wrong.
Thanks for your feedback so far. This is my personal opinion about this, but I would almost always try to avoid directional plays. I always assume more times than not that I will be wrong about the direction. Even if for some duration of time I make more accurate decisions than wrong, I feel like I can never rely on my instinct even if I have a good hold of whats happening. I would much rather, if possible, enter neutral trades (straddles, strangles). Unfortunately, this is also is very difficult because I am betting on quick market swings. However, during this time that I have studied long strategies I have developed a serious infatuation for this type of trade. So this is where I stand, unless I know that I know, I would rather enter a long neutral play than a directional bet. The market does a great job of pricing neutral trades to keep long players from winning consistently especially on single equity/etf straddles. Because of this I am beginning to dig much deeper researching correlations. I am looking for pricing ineffeciencies between negatively correlated stocks/etf's to setup long neutral strategies. I call these modified straddles/strangles. I believe I have found some interesting relationships between these correlations and the way the market prices the options. Any Thoughts? WAR EAGLE
I actively trade options, mostly ATM SPY/QQQ. but my biggest gain is from stocks and CL/ZC/ZS/ZW. option trading gets you excited and prevent you from in and out stocks too often. 90% option trades are wash, i.e., break even trades. Don't get too exotic about options, I never understand and don't want to understand butterfly or spreads. You need to make it really simple. Basis of any instrument trading is that you need to read the price move and get a good sense where it's going to be. You need to make it really simple and swing the big trend. You only need few trades, big ones to make it. I lost 120k for the first 5 years, and my account is sitting at 700K now and only get profitable for 2nd year.
Mike's Rule #1: "Directional play is the basis for any successful trading." you have to spend couple of years reading these prices and there is no other way around.