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Hi everyone,

 

Nice to see such an active forum.

 

I'm an Options trader (expert level), and looking forward to interacting with fellow traders.

 

If any of you have questions on Options, please feel free to get in touch with me.

 

Best

 

Hari Swaminathan - OptionTiger

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  OptionTiger said:
Hi everyone,

 

Nice to see such an active forum.

 

I'm an Options trader (expert level), and looking forward to interacting with fellow traders.

 

If any of you have questions on Options, please feel free to get in touch with me.

 

Best

 

Hari Swaminathan - OptionTiger

 

Just what I need, question:

 

If I think the S&P is going to fall, why would I want to use options instead of just shorting a Future?

 

I'd appreciate if you could explain the benefits of options, bearing in mind I know nothing about them.

 

Cheers

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What a great question - I could write for hours on this answer. When you short the ES Futures, your losses are unlimited if the ES goes up, and you know they rack up quickly, because Futures are more leveraged than even Options are. If you buy a Put Option, and the SPX goes up, your losses are limited to the amount you pay for the Option. So let's talk about how much you pay for the Option. 1) It depends on if you choose In the money (ITM), At the money (ATM) and out of the money (OTM). OTM's are cheapest, but they have lesser probability than ATM or ITM options. 2) You could choose Options that are further out in time (say 60 days or even more), and you have that much time to prove your theory that the SPX will go down. 3) If you are wrong and the SPX actually goes up, you can convert your Put option to a Bear Put or a Bull Put, thereby reducing risks further or giving yourself an outright chance to be profitable even if the market goes up.

 

There are many many more reasons - with Options , you truly have a myriad number of "Options". Perhaps the biggest difference between Options and any other financial instrument is that Options are a game of strategy - much like Chess. They have roots in mathematics, because these instruments were created completely from Math. And Black and Scholes won Nobel prizes for this stuff. So everything is a formula, and if you construct your strategies in a mathematically sound manner, you can be consistently profitable. But let me be clear - Options have a learning curve. While you can learn the basics in 2 or 3 months, it wil take you a year to be an expert. But you're acquiring a skill for life, that no amount of old age or technological changes can make obsolete. This is true financial independence. Visit my site- OptionTiger is the home of cutting-edge Options trading education - I have really cutting-edge material for you to sink your teeth into and watch my videos on my Youtube channel from there.

 

With Futures, Stocks or any other instrument, all you're doing is gambling. You may be using Technical analysis and chart patterns to give yourself an edge, but at the end of the day, its gambling..Period..Options are the only instrument where you don't have to pick direction, or you could be completely wrong in your direction and still make a profit on your trade, because of the mathematics involved.

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  tupapa said:
Just what I need, question:

 

If I think the S&P is going to fall, why would I want to use options instead of just shorting a Future?

 

I'd appreciate if you could explain the benefits of options, bearing in mind I know nothing about them.

 

Cheers

 

Not that I'm encouraging options, but if I own an option (which profits from a downward movement in the S&P) I pay a fee (the premium) up front and thereafter have no risk. With a short position, price could move against you and cause large losses. So one benefit is that your risk is limited and known in advance.

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  Seeker said:
Not that I'm encouraging options, but if I own an option (which profits from a downward movement in the S&P) I pay a fee (the premium) up front and thereafter have no risk. With a short position, price could move against you and cause large losses. So one benefit is that your risk is limited and known in advance.

 

As rightly pointed out by You that the downside risk in option is limited if we have taken a long position in the same.

 

Buying a Put Option - Bearish on the market

 

Buying a Call Option - Bullish on the market

 

Apart from this, one can formulate option strategies to earn risk free profit but these opportunities are very few in the market.

 

Feel free to ask if anybody has a query.

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  tupapa said:
No but it sounds painful. What does it have to do with options?

 

buying options is sometimes referred to as death by a thousand cuts because the time decay slowly reduces your investment. (Practically no different to continually shorting and stopping out in an uptrend)

The alternative is picking up pennies in front of a steam roller by shorting them.

 

Which IMHO is why in both cases you really need a proper strategy to apply them with rather than just a hunch.

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  SIUYA said:
Which IMHO is why in both cases you really need a proper strategy to apply them with rather than just a hunch.

 

Which means in large part that one must do all the research on the underlying that he would ordinarily do PLUS all the research on the options choices. Which is why so few succeed at trading options. As in very few. As in almost none.

 

Options are deceptively cheap. There's nothing cheap about something that causes a continual drip on the account balance.

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  DbPhoenix said:
Which means in large part that one must do all the research on the underlying that he would ordinarily do PLUS all the research on the options choices. Which is why so few succeed at trading options. As in very few. As in almost none.

 

Options are deceptively cheap. There's nothing cheap about something that causes a continual drip on the account balance.

 

Options can, yes, drain your account. But, then, any sort of speculation can drain your account.

 

I have used options to take short positions in stocks when there was no stock available to borrow. IMB, MDTL, LEH, etc. 3 times I was short in the money calls and the stock was called which created a short position in my account ( which i wished I could keep), but the broker made me close it out each time. In each instance, I collected the whole premium faster than I should have.

 

I don't short stocks at the moment, but if I did want to short a stock, i would first check the options to see if there was a more advantageous way of getting short than by just borrowing the stock getting short.

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  SIUYA said:
buying options is sometimes referred to as death by a thousand cuts because the time decay slowly reduces your investment. (Practically no different to continually shorting and stopping out in an uptrend)

The alternative is picking up pennies in front of a steam roller by shorting them.

 

Which IMHO is why in both cases you really need a proper strategy to apply them with rather than just a hunch.

 

Option price consist of two factors -

 

(1) Intrinsic Value of option

 

(2) Time value of option

 

We can say death by thousand cuts is same as time value of option.

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