Watching an option tape

Discussion in 'Trading' started by dcunited, Feb 3, 2004.

  1. Curious if any equity traders look to option
    prints/movement as an indicator for short term equity
    movement (ie within the next couple secs-minutes)? I
    mean beyond keeping track of oi or being aware of the
    nearest strike price near expiration. More like if you
    were a scalper watching an equity tape would you ever
    keep one eye on the option exchanges to see what
    trades were going through?

    Kind of a general question I know, and I'm going to
    check it out myself going forward no matter what, just
    would like to hear any thoughts on the matter.

  2. ig0r


    I'm pretty certain that options (both in size on the b/a and in price) will move slower and after the underlying simply because the options won't move because of every little wiggle, spread is a big reason for this. For example, on the Q's, a move of a few pennies won't change much on the options (ATM or whatever you're looking at) but if the move gets bigger you'll start seeing big shifts in size on the B/A and then new prices printing to the tape. Not too useful for trading the underlying though
  3. HARD.
  4. Bridgette


    the delta of an option tells you how fast it moves with the underlying

    The deeper In the money, the higher the delta. once you are two strikes deep into the money, your option should effectively move 1:1 with the underlying as:

    - as time to expiration shrinks
    - as volatility drops

    1. Buying an ITM option on an underlying offers far greater leverage than buying the underlying outright

    2. You can apply sell stops on long positions or buy stops on short positions to manage risk.

    3. Reward/Risk (margin) will beat buying outright because you have far less that you are risking than when buying the underlying...especially as you go further OTM

    4. Slippage, the bid-ask spread, should be small so trade highly liquid options/stocks.....

    for your example on QQQ, which have 10 cent slippage and have high liquidity

                                                 Today's        Hypthetical return 
    position                 cost         Delta            if QQQ gain $3 now
    -------------             --------    ---------           -----------------------
    QQQ                       36.93       100                     3/36.93
    QQQ Jun 33 Call           5.00        78                    2.67/5.00  
    QQQ Jun 36 Call           2.95        61                    2.34/2.95 
    so position 3 offers the best R/R and u can always close out if it QQQ head south.......