Trend Following with options?

I tried to backtest spreads, but noticed they limit my profit too much. I need some of those big winners.

 

If you're good at trading futures just stick with them. They are simple beasts, they just go up or down with the underlying. No theta, vega, or gamma, although there is a tie to interest rates and any other costs of carry.

 

What about implementing a trend following system, but instead of buying the underlying you sell puts or put spreads? Opposite for shorts.

 

you can use 50EMA to initiate positions. if up trend, buy on the EMA (when it is dropping toward it), if down trend, sell on the EMA (when it is poping toward 50EMA). then sit tight and wait.

SPY crossed 50EMA, QQQ too, I was buying at those level, all turned out to be good trades. aapl not yet, but 10% pullback can give you a good clue, that is why I bought 600 call in the drop at 3, sell them when they are ITM, buy next level OTM, and on and on. when those stuffs are way from EMA, do the contrary,fade them. all those things are just typical PUMP and DUMP. nothing more than that.

 

Well, I've had some good successes with LEAPs held for over a year.

Whatever floats your boat.

 

It limits my profits too much.

 

I already have a profitable system (although it's hard to believe that judging by my journal) and I'm only trying to use options instead of futures for better profit / max drawdown or at least to limit my risk when market gaps overnight.

 

have you thought about buying otm options to protect against gaps?

 

A typical trendfollowing approach with stops and no profit target is basically a synthetic option. If you get stopped out for a loss that'd be the analogy for option premium paid that expires worthless.

There's a number of academic research on 'lookback straddles' as a synthetic way to replicate directional macro strategies, try google.

Don't forget to factor in options bid/ask spreads and liquidity. I doubt using options is better in qualitative terms for whatever you're doing than taking positions in outright futures. It's just a different approach.

 

I don't know man, I always thought that the reason some trend following strategies worked was due fat tails in financial prices. With options you can benefit from that without being exposed to it, in the underlying you will get killed every once and a while and have your stop gaped