Hey guys, I usually have been more of a lurker on this site. However, I would like your opinion. I am looking to move into trading options and choosing to focus on SPY as my target. My reasoning is that I can focus on one underlying security, learn all the ends and outs of how it moves and develop a strategy to put short terms gains out of it. My time horizon is 1 week to 1 month. Can this be effectively done by someone new to options?
Sure. Spend a few weeks paper-trading SPY options in a demo account. The most important thing is to see how implied volatility varies from hour to hour and day to day. One of the most common surprises to people new to trading options is when they buy call options on a big down day, and the stock jumps by 1% the next day but the call options they bought don't move up at all.
Maybe I didn't make myself clear? While I am new to options, I have traded equities for well over a decade. So it isn't that I am new to trading all together.
Thank you for your response. This is what I have been doing. I have been demo trading on my Thinkorswim account. So far I am having decent success but of course I know that the psychology of trading changes when real money is involved. Also, I am spending a fair amount of timing studying the Greeks and how Delta, Vega and Theta play into the overall scheme of Option trading.
you can potentially do fine, just always keep in mind the maximum loss and maximum gain for any given trade. Also, don't get so lost in your technical analysis and chart-mapping that you forget what SPY is. It's a composite of U.S. stocks. If you believe the economy will outperform/underperform the current expectations, go with that before you just obey what the lines and curves are telling you. -my two cents.
A week to a month? You are kidding yourself. Options brings a whole set of variables of its own, the Greeks being one of them. ITM, OTM, depreciation, strike prices, finding a knowledgeable/lowcost/dependable options broker, the underlyings, etc. etc. If your trading is a few hours, not much of a deal. But if your trading lasts a few days, then buying options will cost you just in time depreciation. And selling options is only for those with deep pockets seeking modest returns. Options are usually less liquid, for one. Also, you can get a lot better idea of price action (charts) when NOT options. Also, for trading equities, you have said whether you are consistently very profitable or not. If not, you will likely do even worse in options. How is your current trading's drawdowns, sharpe/sortino, profit factors and other trading statistics? I think you are going exactly in the wrong direction.