Why can't you just....

[AgeKay 10]

For all the beginners with options out there (like me), from people I trust, I've heard that:

 

Don't trust anyone in this industry and don't listen to other people (including me). 99% have an agenda or no idea what they are talking about (they basically just repeat what they have heard from another clueless person). The remaining 1% does not talk to you.

 

1. certain methods of option trading take 20 minutes once per month to set up positions, and then 2 minutes per day to check the positions, if this is true, then we cannot talk about anything time consuming here as you can work in a regular work and trade options at the same time, unlike intraday trading of futures markets

 

Sounds like any kind of EOD trading to me. What you are referring to are probably strategies where you are selling optinos for theta - basically waiting for them to expire without becoming ITM.

 

2. there are strategies profitable 9-11 months from a year

 

and you lose all of your profit and more in the other 2-3 months. also sounds like option selling to me.

 

3. you can profit from a chop, the price doesn't have to move

 

again by selling options. don't believe those claims that 90% of options expire worthless and that you have an automatic advantage selling options.

 

 

i know everything about options and see no reason why one would want to trade them for speculation. bid/ask spread is huge, predicting the future value of an options is unreliable because you have to predict 5 parameters (the greeks) correctly (ok, only 3 have a big influence on the price, but still 2 too many). I find predicting one (price) already hard enough.

 

 

Btw, some one before said something about buying and selling the same strike to establish an equivalent position. You can do this buying a call and selling a put at the same strike for a synthetic long position of the underyling. Or the reverse, buy a put and sell a call at the same strike for synthetic short position.

 

Another thing many people don't realize. A covered call is just a synthetic short (naked) put so it's not as safe as many people out there assume it to be. They have the exact same risk/reward profiles.

[diablo272 10]

In my experience with options, they are far too complicated for someone with my mentality to use profitably. I am an intraday trader, and options are something completely different from what a "trader", in the conventional sense, is able to exploit. There are so many factors that affect the price of an options contract--I'm sure there are profitable ways to trade them, but keep in mind that options trading and futures or stock trading are just totally different. Unfortunately the only way you will really get a sense of how different from one another they are is if you try them yourself. If you want to trade, but not intraday, you can do that with stocks or futures. Options really are not suited to purely directional strategies, in my experience anyway.

 

From an intraday trader's point of view, the main advantage of options is their leverage. But with the e-minis, the leverage is much higher, and the pricing is much less complicated, so I've chosen the e-minis. If you want to get an idea of what I'm talking about re options pricing, look at intraday charts of ATM options at a time of relatively low volatility, such as April or May of 2008, and then look at intraday charts of the same interval at a time of higher volatility such as November of 2008. Compare these charts to the underlying. If you are a purely directional trader, I think you might find that options are not the best choice for what you want to do.

 

But as AgeKay said, I don't know you, so options may be the perfect fit for you...Really, it is up to you to decide.

Edited June 15, 2009 by diablo272

[legout 10]

I have to agree 100% with Diablo. The pricing model makes options behave unpredictably at times. You not only have to have the direction right, but the volatility, to. It's like trading in three dimensions. I did it for a year. Covered Calls, credit spreads, and some longs, as well. Covered Calls are a waste of time. To make money you have to buy the stock on a dip, then write at a peak. If you think it's the peak, just sell it! You make a lot more money. That's because when the stock falls, volatility rises, so the call you sell at the top, maybe worth nearly as much on the next dip, when you want to close it out.

I just don't like options. The bid ask spread stinks on most issues, so you are a loser RIGHT OFF THE BAT.

If I traded options the ONLY way it makes sense to me is to sell puts in a rising market (then delta, vega and theta ALL work for you) Or buy puts and sell calls at the same time, in a falling market (vega and theta are neutralized). Selling naked puts is the best by far. The only strategy that puts every option pricing component on your side. It only works in a rising market, and only works if you put a HARD STOP in beneath, and recommend it the most on indices (so no overnight news can wipe you out) It requires a some margin. TOS has reasonable requirements in this regard for short options. They understand the short side better than anyone. Take care.

 

legout