There are folks who trade iron condors every month on SPY. Because it's an ETF and not an individual stock, its volatility is more muted and therefore lends itself more to sideways strategies. It should be possible to come up with 1:1 risk:reward IC trades that win 60-70% of the time.
Options are great, as long as, has already been mentioned they're liquid. So DIA or SPY are the way to go, as far as I believe. I've just bought several DIA puts this evening for cents. My margin is negligable and they have over a week until expiration. Very cheap and great for swing trading. No need to hold the etf and risk is set in stone. Only thing is that timing has to be good, but if you're an experienced technician then no probs. All this dicing and splicing hedging I leave to the 'experts'. I just like options for their margin, risk and flexibility.
Thanks for the responses. I guess I didn't make myself clear as to my experience with equities? Im moving into options and I thought that this would be the way to go: 1. the SPY are highly liquid, shouldn't be much trouble getting in and out of a trade. 2. I was looking at times frames of usually 30 days or less. 3. Yes, technicals are important, but I believe that there are days when you just have an opinion of the Market, whether it is going to skyrocket or tank. I should say that i was looking to do this regardless, but I wanted to get some feedback as to what would be the pros and cons of playing the SPY. And I guess I would have fashioned my trading around the various responses. thanks.
There are probably better ways to learn than on a $110 underlying. Lots of liquidity in the $20-$30 range, too... with correspondingly lower margin requirements as well.
You are doing what I am doing. Trading SPY (and some RUT too minimize commissions) (Iron Condors, Butterflys, Calenders) every month with guidelines I have taken from Dan Sheridan webcasts. Betting small (1 to 5 contracts) and seeing if I can actually make money using income ideas after commissions are included (that may be the hard part). I am trying to take 10-15% out off my margin with max loss 15-20%. SPY seems good, but commissions can stink, that is why I am also using RUT. SPY makes me less nervous about bid ask spreads in the event of a large market move though
SPY is good because the bid / ask is tight but I trade stocks with options too. Even if a stock I like for a swing trade has an option bid / ask spread of .10 or .15 cents I may buy it. I like putting up $500 instead of $5000 to get into a position. I also like the idea of focusing on one instrument like SPY but I have had better luck with options of individual stocks for some reason.
Just be sure you understand the single most important part of options pricing... the conversion and reverse conversion. Without understanding that all options series trade within a penny or two of calculated Fair Value, you will be tempted to trade the wrong options for the wrong reasons. All the butterfly and iron condor "stuff" that we developed back in the 80's is "fine" except we did them for quarter and half dollars, not pennies. There is money to made in many different instruments, options traders aren't usually writing checks to the public however. You're doing the right thing to ask questions, and follow some advice before getting stuck in something you're unsure of. All the best, Don
You are right and then some. I've been trading SPY options for 30 months using a trading system and enjoy a risk reward of 1:2.1 and a 74% win rate. It is possible. Good luck