If everyone will forgive some dumb questions: What is meant by the phrase "learning to trade an options book?" And, for those of you such as Maverick74, who've made the transition from Tape Reading listed stocks to trading options, do you feel your tape reading skills were an asset in making this transition, or did you have to start at the bottom in climbing another steep learning curve? If Tape Reading was an asset, can you describe which aquired skill sets seemed to be of help? Thanks for any help and commentary - just trying to learn and gain a perspective!
I'm not Maverick, but I can play "Anyone" on TV. Trading an options book means carrying multiple strikes and multiple expirations and managing your overall position. Floor traders may be buying or selling any strike of any expiration at any time. How do they hedge their overall risk and still make money? As for tape reading skills, I find the "real time" level II, T&S, etc skills to be practically worthless for options trading. The spreads are just too wide for it to matter. Just covering a .05 spread may require the stock to move 1-3%, and .05 spreads are too few and far between. But that's just me.
Tape reading is a skill needed for those who day trade stock and futures. Longer term traders, like option traders, not only do not need this skill, but actually are more realistic in that they feel tape reading is aking to gambling. Tape reading is like watching the previous rolls of the dice in Vegas and betting on the next hand when in fact the next roll is independant of the previous roll. Option trading is the right thing to do for those who do not think they can predict the future, which is what astute traders term random walk philosophy.
Linda, Perhaps you'd like to read this thread: http://www.elitetrader.com/vb/showthread.php?s=&threadid=56373&highlight=tape+reading I think there's a bit more to tape reading than you indicate, and gambling is not a good analogy. Maverick74 has particularly good insights.
An options book is a book of positions. It's called a book because positions usually are not just one strike or one month but can involve 10 to 20 different strikes over 3 or 4 different months, so the whole position is referred to as a book as in a book has many pages. Tape reading and options trading have nothing in common. Tape reading taught me discipline and focus which is useful no matter how you trade. I learned how to trade options before I learned tape reading, so no, I did not start at the bottom. But for most guys, it would be like learning something completely new.
I am an option trader Linda and your statement could not be further off. Tape reading in it's hey day was the furthest thing from tape reading. It was very precise and very accurate and our group in NY was one of the best on the street at doing it. That meant we made money 240 out of 250 days a year. In other words, maybe one down day a month. You obviously have no idea what tape reading is as it has nothing to do with rolls of the dice and betting on the next hand, in fact, it's completely the opposite. I'm not sure who you are but for someone who is pretty new around here you sure are throwing around a lot of false rhetoric.
Mav: I have a question maybe link option trade and tape reading together. That is, if, say, 500 contracts option of AMD are exercised, can we see 50000 shares printed out at T&S of AMD? If it can be seen, then how to figure out that big shares are caused by exercising the option? Thx in advance
dt06, exercise/assignment happens overnight and transferred shares will not âprintâ; consequently anything printed is not related to exercise. AFAIK the only way to determine exercise is through Volume/OI analysis.