Trading Index or Stock Options Preference

Discussion in 'Options' started by Mitch89, May 9, 2013.

  1. Mitch89

    Mitch89

    Hi guys,
    I am interested at learning from more experienced options traders, so...

    1. What do you find more profitable trading Index or Stock Options (not considering
    Asset insurance as trades, just pure options trading for profit)?

    2. If you trade American Options do you trade them successfully as a Day Trader
    or as a Strategy Trader?

    3. If you trade European Options do you trade them successfully as a Day Trader
    or as a Strategy Trader?

    Thanks in advance
     
  2. ktm

    ktm

    I trade exclusively index options.

    The lies told by corporations and book cooking just got to be too much for me about 10 years ago.
     
  3. Studies show clearly that index options are systematically over-priced relative to individual stock options, so for those selling premium, index options are preferable in general (of course there are exceptions, perhaps including certain widely-traded stocks).

    Of course there are still lots of occasions to trade individual stocks, including announcement plays etc.
     
  4. Depends on what you are specifically looking for. Individual stock options have sig more volatility and opportunities (thousands of choices) and index options dont crash and burn as bad as indivduals..
     
  5. Mitch89

    Mitch89

    How about the fear or inconvenience from being partly exercised or Dividend distribution?
    It may require huge efforts to manage those positions as oppose to index strategies, or is it?
    Doesn't it make sense for individual professional traders to mainly trade index options?

    I am trying to establish my own focus on trading options, by trying to professionalize my skills
    one slice at a time, then move to the next level, and the next...
     
  6. Thanks. If you donot mind ,please tell which indices you prefer. Currently I only trade SPX, XEO, RUT and sometimes NDX. I would like to look into other indices to diversify. Are there any indices on commodities or some others worth looking at.

    Thanks for your help
     
  7. Actually that edge went away like 7 years ago.
     
  8. ktm

    ktm

    You are already more diversified than I am! I trade the SPX and RUT and that's about it.

    The OP was considering individual equities but worried about specific name event risk - dividends, etc... That takes more work and knowledge to track all of it, and I've found that I don't watch the markets every second during the day. Missing some of this breaking news (changing earning dates, altering dividends) can be detrimental to your profitability. Different events can affect commodities. Weather affects corn and why did gold crash a few weeks back?

    Depending on your strategy, the things I just mentioned can be opportunities and not issues. Commodities can also wind up limit down/up for days at a time.

    Diversified foreign indexes can also provide good opportunities. Even the Dow isn't diversified enough for me. I saw a stat yesterday that the Dow would be up another 10% right now if it had retained the companies that were removed during the last reshuffle.
     
  9. luisHK

    luisHK

    Do you mean index options are no lo longer overpriced relative to the underlying HV ? or relative to individual options ?
     
  10. Index is not systematically overpriced compared to single stocks.

    There is a research paper at ssrn about it.
     
    #10     May 10, 2013