This Forum overtrades options

Discussion in 'Options' started by bwolinsky, Nov 9, 2011.

Thread Status:
Not open for further replies.
  1. Hi, I'd like to point out that so many times when I'm reading this forum it's always about some schmuck who would like to do something fancy option wise so they'll put on a butterfly or say something with the favorite catch phrase of an iron condor but more often, it is usually an individual trader making too many bets than he has to to make the money he wants.

    A strangle is stupid. Come up with ways to predict which way the market will move, then trade options that way. Quit these idiotic options combinations and make directional bets. That is what makes money, not this idiotic I'm guaranteed to make money if I buy both a call or a put or I should make some small profit off theta or vola is too low so I think there's a high probability of a 4% move but I don't know which way it'll go so I'll be a dumass and put a strangle on just so I'll be sure that I can report a profit on at least one of them but god help me if they're at the money on expiration.

    Seriously, this is one of the sophisticated parts of trading, but the more stupid strategies I see people putting on just for the sake of supposedly managing risk doesn't make any sense. If you're betting both ways there's no point to even being in the position and unless you have some reason to put a share to somebody there's no reason to ever sell a put and without question don't ever sell a naked call.

    You should either use options to hedge by buying small percentages of your portfolio in put options whenever whatever marginal winning system you have is when you should do it and just see it as paying 3% to protect yourself which is a much better investment some would say than taking it to somebody who would not buy such insurance.

    Haven't done greeks but the only thing I care about to calculate my hedge ratios is delta, and I use that delta as a target dollar amount that I convert into the requisite percentage to figure out how many contracts to buy,. If you're not doing that maybe your broker doesn't allow you to trade options.

    Here's all they're for, managers figure they'll make between 7-15% every year, and in the off chance that they have a bad year their standby is the zero return year because their positions went against them but they had a bunch of options contracts but practically all of the financial institutions won't do this, (probably except for Karen Feinerman on fast money she seems to enjoy buy russell puts more than 5% OTM).

    So why do we have so many threads discussing possible options combinations to buy when all you need to do is bet the correct direction. Don't bet both, you won't make any money that way, and I'm sure there'll be some flak from saying that but even after studying options in the CFA curriculum there's not much place for the strategies designed to exploit theta decay because it can be convexly disadvantageous, especially if you're working in bonds or bond futures just watching the prices of bonds move for the first time I thought that they'd have a bit more push up but now that the yield curve is about to go inverted we'll be in for some more money printing so even from the perspective of inflation you'd only want to trade those anyway.

    Why complicate these things? Trade directionally. Build systems designed to hedge or leveraged long/short by buying puts that'll protect 80% of your portfolio at least. They don't cost much and if you're timing's good but it doesn't have to be because it assumes a consistent periodicity and timetable for investment I think that a lot of the volatility many will experience in options will go away if they really try to target what they're trying to make and actually examine which way a stock or ETF might move.

    The options on index futures strategy is safer in the sense that it's the whole market, but don't trade them unless you really have some conviction about where you think the market might move to.

    Buying leaps is fine, but don't expect the moves to be even close to 1 for 1. If you're in the money after a year and a half, then that leap should probably be sold at the earliest possible time and wait for a pullback. That's the long, but I don't know hardly anybody trading put leaps.
  2. Dude, that's a lot of words, not sure you said much...and if you think the CFA helped you study options you're more than mistaken. Cheerio.
  3. oddsman


    Yep, a lot of words :D

    I get the gist of it I think. I just would like to add I only know how to make money with options by forming an opinion, opening a position and then closing for a profit or loss with zero adjustments. Those guys who can make money closing and reopening one leg of a position for a loss to protect what they're calling a "neutral" trade pocess a skill I don't think I'll ever have.
  4. jmhunter


  5. IVtrader



    (I noticed that you've been registered on this website since 2008 and have posted over 400+ times? in various forums on here)

    after all this time, you submit this posting(over 7 paragraphs), wondering why some traders will put on a strangle, butterfly or iron condor when "as far as you can tell" the only reason to use options is.......... to hedge a stock position or make $$$$ trading directionally.

    of course more seasoned and astute option traders could tell you that:

    some NON directional trades are designed to profit from a change in IV(implied Vol) of option premiums such as (negative vega trades like the butterfly and iron condor) and positive vega trades like the calendar)rather than price direction; and the strangle(which is a positive vega trade) designed to capitalize from a big move where the direction is u-n-k-n-o-w-n and when IV is L-O-W, typically right before a earnings release

    some time spreads used directionally such as the OTM butterfly(when you want to capitalize on a possible move up but don't when the move will happen and you want theta on your side) or an OTM put calendar(when you want to capitalize on a possibile move down but don't really know when the move will happen and you want theta on your side

    and yet any and all these strategies have been around for many years, traded by many successfull traders , some of whom have been the subject of articles in Industry related magazines and since these strategies can be easily learned from very well marketed trainings (easily found on the Net)plus several books,none of which are new, I have to ask:

    is it just that you really don't want to take the time to know the how and why others trade these strategies OR do you have some other agenda for posting?
  6. sle


    "Some people should not be allowed into a library unattended" (c) One of my college professors
  7. ASE1245


    "A strangle is stupid". Interesting. Trading options delta neutral is a strategy that works, very well, for many traders. Most successful traders are able to make money over long periods of time on the shorts side, but sometimes buying works too. I did this for 25 years with only a handful of losing months. I know other traders that retired younger than 40 years old from trading that way. Still stupid?
  8. Just like the people you're indiscriminately accusing of overcomplicating things, you're guilty of sweeping generalization. Everything has its place in moderate quantities, including flies, condors and the like. Just 'cause you don't know how to deal with the complicated bits doesn't mean others can't.
  9. i agree with some of his points...

    I have heard many times from many others - "why trade options and complicate things if you can be reasonably good with directional trading".

    I also see options as being appropriate for stocks like AAPL GOOG, AMZN etc. etc. so you do not have to commit as much capital and can leverage with more units.

    His point of using options to supplement and hedge, rather than constructing positions is not without merit. To be frank I am ready to do less options and more equities, ETfs and futures. Getting fairly tired of this non-linear crap, having to wait longer periods to see a potential profit... all the while being whipsawed around like a bottle in the ocean.... when I could have closed out a long stock position and re-entered 15x by the front month (or week) expiry.

    Options for directional trading makes sense. Backspreads make sense to me.
  10. IVtrader


    There are apparently some of you in this thread that want to restrict yourself to trading directionally. as long as you are making $$$$ doing that, that's the main thing

    yet the fact is that for those who are wiling to invest some time, study and labor to understand the different option strategies and how and when to use them, alot more opportunities to make $$$$ open up.

    trading directionally has its drawbacks, mainly of course that you HAVE to be correct about direction. if you aren't consistently right(have a high enough win/loss percentage), and are frustrated by that, then there are at least 2 other ways to make $$$: capitalizing on changes in IV vol with option premiums; capitalizing on a index or equity's sideways movement(trading NON directionally)with certain option strategies

    and of course one can trade both ways: directionally and non directionally.... that's the optimum way. you just have to learn how

    its just that simply and just that difficult
    #10     Nov 10, 2011
Thread Status:
Not open for further replies.