Upward Forcast: Best Strategy?

Discussion in 'Options' started by matt122333, Jan 4, 2011.

  1. Hello.

    If I believe a position is going to go up, in your opinion which strategy would best apply when trading options?
  2. MTE


    Based on the information you have provided I'd say the best strategy is to just go long the underlying.

    In other words, you haven't provided enough information to provide you with a range of possible option strategies. When trading options you need 4 things to determine the most appropriate strategy:

    1. Direction
    2. Size of the move
    3. Time frame
    4. Direction of volatility

    And you should also consider the liquidity of options.

    It's like saying you want to go from point A to point B. What is the best way to get from A to B? In order to answer this question you have to at least specify the distance between A and B. And for a complete answer you have to specify their respective locations, your budget, desired duration of travel and etc.
  3. spindr0


    Ditto what MTE said.
  4. When the run starts ? in next few minutes or in next few years ?
    Going up by how much ? 1% or 10% ?
  5. At the initial writing of this topic I had an idea that the market was going to go up, as did probably everybody else. Recently, the market has been going up. My question is related to today and being able to take advantage of this time period of economical growth using options. In your opinion, what are those methods/strategies of being able to take advantage of this time period of economical growth using options?

    It's a general question, not a personal one. So assume whatever amount of capital, whatever amount of time, etc. you want. I am new to options so I am trying to read different opinions on best practices during a market such as now. Later on I will probably try to do the same when the market is sideways or down.
  6. spindr0


  7. donnap


    It is a personal question, though.

    To add to MTE's ample criteria, there's also risk tolerance and experience.

    You want a strategy that you understand, doesn't make you nervous and gives a good return.

    Some traders may sell puts in a bull mkt, while others prefer a more limited risk strategy such as bullish vertical spreads. Both would have been profitable over the last month - but have a very differemt R/R.

    Bullish calendar or diagonal spreads may work well, but they might require management that someone new to options might not grasp or he might miss opportunities.

    I suppose that you could backtest and come up with some ideal strategies over the past month, such as which put to sell or which call to buy - but we don't have the benefit of hindsight when we put on trades.

    So choose your poison and be prepared if you are wrong.
  8. spindr0


    Some 20+ years ago I got access to Optionvue. Until then, I had been using shareware and the backs of envelopes for my calculations.

    With all of its bells and whistles, I thought that OPV was the cat's meow. There was one section that used current option quotes, ran through all major strategies and indicated what the best one was. All you had to do was tell it the size of the move, in what direction and in what time period. Well jeez, I guess I should have bought the program that gave you those details :D :eek: :D
  9. donnap


    lol literally. I'm looking at all the scribbles on the backs of envelopes in front of me. I don't even know what half those calcs mean anymore. :D
  10. spindr0


    They'll be clear as day if you connext the dots with your crayons, turn them upside down and squint at them cross eyed! :)
    #10     Jan 6, 2011