Using options in TF

Discussion in 'Options' started by Ciatronic, Aug 12, 2010.

  1. Hello,

    I'm very new into options trading, my knowledge on this type of trading is very limited so I would like to know a few things.

    If I'm a a trend follower and I would like to use options as a stop loss, what type/what combinations /methods of options should I use? Just point me in the right direction. Thanks.
  2. rew


    What do you mean by "use options as a stop loss"?
  3. I mean, let's say that I already built some long positions (normal long positions on the market) and instead of using stop losses for this long positions, I would like to use options.

    For e.g. , delta-gamma neutral strategy, could be a solution? Or I'm way off reality... .
  4. Read up on long volatility strategies. IMO, long volatility is what generates the returns behind trend following. If you have a strategy meant to profit from volatility, its a kind of trend following system. Long volatility has also done very well in the unusual Markets we've hard since 2007. Volatility can be traded in most if not all asset classes, and even more so than traditional trend following, which is limited to longer timeframes. Long volatility has more freedom in that regard.
  5. curtains


    I think the OP's question is simpler than that. It sounds like he just wants to go long puts to lock in a sell price for his long underlying pos.

    My guess is that he'll keep rolling the puts to a higher strike if the underlying keeps trending.

    Vols will play a part in determining the cost effectiveness of the strategy.
  6. If you're looking to lock in underlying gains or limit losses with options, buy the nearest OTM strike (puts for long stock or calls for shrt stock). You can reduce the cost of the protective insurence by doing collars which is selling an OTM options to reduce outlay. Example is buy stock, buy put, sell call. strike Distance from current price determined by how much you want to protect and how much upside you want.
  7. exaltedangel09

    exaltedangel09 Guest

    By the time you take into account trading fees, slippage, tax, and market risk, you might as well just buy a t-bill, LMAO, don't you know that T-BILL = LONG - PUT - CALL?

    i.e put-call-parity?

    call + t-bill = put + stock
    t-bill = put + stock - call.

    Put–call parity implies:

    Equivalence of calls and puts: Parity implies that a call and a put can be used interchangeably in any delta-neutral portfolio. If d is the call's delta, then buying a call, and selling d shares of stock, is the same as buying a put and buying 1 − d shares of stock. Equivalence of calls and puts is very important when trading options.

    Parity of implied volatility: In the absence of dividends or other costs of carry (such as when a stock is difficult to borrow or sell short), the implied volatility of calls and puts must be identical.[1]
  8. Vol not a big part in this because if rolling, he'll get some of it back from sale of original long option.

    If he's rolling, he's successful ebcause he's getting 100 delta on the underlying while losing much less on the long option. The more rolls, the more the profit.