Come on, guys. Please stop speculating and commenting on the market direction in my thread, for whatever reasons. I believe this forum is for professional traders. Do not blab your directional market prediction here. There are plenty forums out there. I belive Elitetrader discusses general principles and ideas that work or don't work everyday. I have no problem if you post in yours or others threads. Make sure use a clear title. So I do not have to read them.
hardrock and white, I wouldn't take your statements as insults to me. I simply do not care what you say to me. LOL.
Thanks hii, What time do market makers usually start to discount the the time erosion for front month options? 3PM EST?
That's a more advanced question than I can answer. You should ask it in the Options Topic if you need an answer. Are you trading options that have less than a month until expiration? That's taking on a lot of risk, similar to using margin. The idea that buying a near-term option will give you added leverage by lowering the Delta, is something I would dispute as being not worth the risk. And as you suggest, there is such heavy time-decay eroding the value of these options, that the lower delta is no bargain, when their value melts in your hands.
You see, I am not predicating but stating a fact of observation. This fact holds true so far. That is, during expiration week even we have plenty of economic news, earning reports, and development of political situations. The market hardly move in either direction. I am talking about movement of over 300 points for Dow and 30 points for SP500 in 1 or 2 weeks. So options buyers generally are doomed. I have no problem with this fact. What I have problem with is the PDT rules on stock options. This is not fair!
PDT or no PDT, trading near-expiration options in this market, which as you stated does not move as you might like to predict on the basis of news or events, is far too much risk unless you are some kind of market genius. Even then, there's Victor Niederhoffer, fancy shmancy top-of-the-world financial manager and champion athlete, trading options and losing enormously, not just once, but twice, as an example that no-one is such a genius. Don't be tempted to trade options that are almost expired. You have to limit your risk in the small way available with options, by giving yourself more breathing space of time before expiration. It's just not worth the risk that they will go against you with no time left. The odds are, more often than not, the stock will move against you right before expiration, your position will get closed out worthless, and the next week the stock will turn around and go your way, after it's too late for you because the options you bought expired the previous friday. There's a lot I don't know about the market and trading, but one thing I do know, from my own personal experiences, is you really have to choose an option with at least 2 months left to it, preferably 3 months left. It's worth the extra dime or quarter or 50 cents to have another couple months left to the option.
Good post. Yes if you are going long you have better odds at winning if theta is lower by buying further out. That is why with the market very quiet like right now some form of calendar spread will work as the near term will erode more rapidly than the long term.