Hello, Let say I have a bearish assumption on the market and I want to buy put on SPY . Which expiration and strike should I choose to get the most bang for the buck? Are there any available research on how far one should go in time and if option should be ITM or OTM? Thanks
How about doing 6 months of demo and find out that way? You learn by doing, pricing of options called the Greeks will take to while to understand, then market direction is another way to trade them, is the price slamming in direction that you want to buy or sell will give some false prems/discounts, then what to do when price is doing opposite of what it should be doing and what should you do? Best to paper trade and learn then getting answers you will end up back testing anyway or at least you should be doing.
petersen82 To answer your question, you will need to nail down the missing information. 1) Quantify the market move you expect and quantify the probability. 2) Quantify when #1 will occur and quantify the probability. 3) Using 1 & 2, determine if any positive expectancy is possible. And pick your option strike/expiration accordingly. The above is a little bit cynical, however, attempting to quantify the moves and probabilities, is sobering, and may help to not loose one's shirt.
I would go with the 1-strike OTM weeklies. Buy on Friday through Wednesday with the expiration on Friday (5 to 2 day trades). Start with $100.00 or less, the debit paid is the stop. The quick expiration prevents you from hanging-on to a losing position hoping it rebounds. No need to demo trade. SPY option positions can be entered for $100.00 or less, real trades are invaluable.
And real losses are not valuable, yeah I am cynical, saving those who know so little from blowing out their accounts in two months. I co-owned a brokerage in the 90s, beginning day traders on average blow out accounts 99% of the time in 2-6 months, with Internet allowing you to do many trades in short time instead of calling it in back in 90s, am sure failure rate is much quicker.
I didn't imply that "real losses are not valuable". I posted "Real trades are invaluable" that includes: Losses that go with real trades. Gains that go with real trades. Decisions that go with real trades. All invaluable that you wont get with demo trading. And at only $100.00 per week a bargain.
When you not done back testing to know which strikes, expiration, ITM, OTM this equals LOSER. Demo trading gives you time to learn and not have to pay as much tuition, you can wait a few more weeks of stealing their money,
With a little research, you'll quickly come up with the conclusion/answer to your own question. a couple ppl posted good answers.