Options on ETFs

[waveslider 10]

I manage some money trading ETFs. My trades are short term in nature (1-7 days), are long only. Sometimes I make multiple entries, but always one exit.

 

I am attracted to options because of their leverage. Having more leverage enables spreading risk around through diversification.

 

Can anyone tell me if there is an options strategy that might be appropriate for what I do?

 

Thanks

 

WS

[TinGull 10]

Selling vertical spreads. Why buy the premium when you can sell it. Thats what I used to do prior to getting involved with the temptress we call "futures".

[notouch 10]

Doesn't selling options defeat the purpose of trading them? The big benefit of options (at least for simpletons like me) is the ability to limit your risk without having to worry about stops. What's the benefit of selling puts when you can buy futures?

[TinGull 10]

Selling spreads limits your risk more than any other strategy out there IMO. You have a limited profit potential, but the risk exposure is much lighter than buying futures...much lighter. And no, selling them doesn't defeat the purpose of trading them, its just another way to trade them.

 

One could always check out Red Option Home Page or Option Planet: Classes for more info on ways to trade options.

[Dogpile 10]

TinGull,

 

what are the primary benefits of trading futures versus your old job? why did you switch out of screwing the customer to competing with your old customers?

[TinGull 10]

One thing for me...holding overnight. I didn't like holding a position overnight and love being closed out at the end of the day.

[walterw 10]

I did trade options here in Argentina and Usa... you have to be very literated on the topic to profit... I finally considered I wasnt correctly instructed so didnt follw up just kept working on my futures... Dogpile, do you do options ? what options education program would some of you recomend ? cheers Walter.

[Dogpile 10]

no options for me. my brother in law is an options trader and we were IM'ing on this subject of options vs futures on friday so I thought I would pose the question to a convert (options to futures).

 

he seems to be doing great but has to take increasing leverage on to make up for the declining 'edge'... still feels like he can make good money but its tougher.

[TinGull 10]

I agree in the recent landscape options are much tougher than they were even a year ago. Premiums are stupid cheap and selling them isn't making as much coin for the risk as it used to, and buying them...well, buying is fine to a point, but you do have to increase the risk exposure to make the same amount when premiums don't increase in the amounts they used to. There just hasnt been the volatility in the marketplace since last August to provide a good opportunity, IMO, to trade options.

[darthtrader 10]

waveslider, you might want to check out Jim Leitner's interview in Inside The House of Money. He has some interesting ideas on buying options and as he puts it "paying someone else to do your risk management for you". He uses a much longer time frame though than a week. I'm not there are many valid strategies for buying options on that time vs the stock as i would think any benefits you would gain from diversification you would lose on the spread and eating theta on the overall portfolio.

I would think you would be much better off going with strategies that are short theta.

[waveslider 10]

Thanks for those specific and to the rest of you all for advice. Does it make sense to look for vertical spreads with short theta (combining your idea with tingull's).

 

The strategies I have developed for ETFs take advantage of short term volatility, so I am thinking that spreads might be wide during times I would want to enter, is this true?

 

Is it better to enter options trades in times of low volatility or can you stick a limit order out there that could get hit.

In my investigation, there are quite a few ETFs which have options with decent volume.

 

I will look at the Leitner interview, but it sounds like it might not be an exact fit due to the time frame he trades.

[TinGull 10]

If you're wanting to sell spreads, you need high volatility to capture premium. If you're buying them, you want the lowest volatility possible so you pay the least amount for those options.

[walterw 10]

I understand there are some softwares that scan for this type of oportunities, is some one familiar with that ?

[darthtrader 10]

walterw, you should check out the think or swim demo, it has really nice options tools, i would think it can do what you need.

 

i'm sure option station for TS could do this. any of you TS guys use option station?