Swing Trading Resources / Strategies for Enthusiastic Idiot!

[NoSquigglyLines 10]

Hi All,

 

Been a lurker for quite a while on this site, mainly looking at futures day trading. I'm fairly comfortable with that side of things, trading in demo at the moment, just trying to build up experience and will be going live in the coming weeks/months dependent on other commitments.

 

'Other commitments' is really the reason for this post ... I have a pretty limited time available to me to day trade due to my job and timezone so have been thinking that I should try and do some swing trading too (as I have more time available when markets are closed/outwith RTH). I have pretty limited experience with options but it would seem to me that they offer a great deal of flexibility and are definately something that I should learn more about and try to utilise.

 

My question is this - How should I go about learning about options, and more importantly, pertinent strategies that can be used e.g. obviously they can be used as a kind of proxy for buying shares with standard TA, but is it worth learning the more advanced butterfly/condor/AN Other type strategies?

 

I've had a look at redoptions.com and thinkorswim, but there's so much information I'm not sure where to start and, as with so many online trading claims/products/services, I'm not sure what to believe.

 

Can anyone provide a concise guide on where to start and what to learn?

 

Thanks,

Al

[NoSquigglyLines 10]

I got some flak for this post in another thread, so I've apologised.

 

http://www.traderslaboratory.com/forums/36/hey-im-new-and-need-three-4914-2.html#post53123

 

Apologies if this comes across as me saying "please give me the golden key to the magical kingdom for nothing".

 

All I was looking for was a sentence or two e.g. read about x, consider y. I'm going to be reading everything on the redoptions site anyway, but sometimes it helps to have a bit of personal experience or a few tips to try and limit some of the more obvious beginner mistakes.

 

I've got a lot of information from this forum so sorry to be causing offence here in only my first post.

 

:doh:

[thrunner 10]

Try the Options Trading Beginner to start.

 

Daily Options Report

TraderFeed

Headline Charts

Quantifiable Edges

Condor Options

MarketSci

Don Fishback's Market Update

Market Rewind

The Big Picture

Abnormal Returns

Trader Mike

The Kirk Report

Random Roger

Infectious Greed

Information Arbitrage

Trader's Narrative

Putting the Pieces Together

Decline & Fall of Western Civilization

Afraid to Trade

Bespoke Investment Group

Cobra's Market View

The Aleph Blog

Chris Perruna

Bull Bear Trader

IBD Index

1Option

Options Doggy

OptionPundit

Simply Options Trading

The Volatility Soma

Options Trading Beginner

[james_gsx 16]

There are several great options blogs available, but will not really teach you in depth about options.

 

First a disclaimer: I trade options, and I will say that it truly is a fools game. But that doesn't stop me anyways. With options, don't let the idea that "unlimited profit and limited risk" fool you. In fact, those trades often make you the fool.

 

To start out, I would definitely learn about the more complex strategies. The reason is simple, you can use guys like the Option Addict and buy calls/puts on directional movements. But the problem arises when you get the move, and then price reverses against you. This will happen 90% of the time. For example, you see a triangle and anticipate a break to the downside so you buy a put. Price breaks the triangle and shoots south, your put more than doubles in value. A week later, price re-tests that breakout level - now that option is at a loss. This is very important to understand, and it took me a long time to figure out. Those easy trades where you load up on calls and puts, everyone else is doing that as well. You end up paying a premium, and IV starts to move higher - and moves higher again as price breaks out. When price goes back to retest, that IV gets crushed and so do your options.

 

To make sense of that rambling, the "complex" strategies like spreads make more sense. While the risk may seem outrageous compared to the profit, you must look at the probability of getting that profit. You have to be okay with smaller incremental profits - compared to a huge profit and 4 losers. Just like in futures, each trade will be different and will call for different setups. But after a while you'll get the hang of it.

 

If you want to get into options I suggest learning a few things:

Spreads (think or swims website is a GREAT educational resource for this)

Greeks - again, you can search just about anything to learn about them.

Screen time - you'll need to watch the options markets to get an idea how they work.

 

Also, elitetrader has some great threads on options if you do some decent searches. I can't really tell you what to search, but you will figure that out as you move along the learning curve.

 

In reality, options IMO will take much longer to fully understand than futures. But in the mean time, if you are competent with your understanding of price analysis then you can set up some strategies that work will with your risk to trade while you can't trade full time. But it will still take some time to learn.

[NoSquigglyLines 10]

Thanks James_gsx,

 

I must admit I can see it taking a while but I've started some preliminary reading. I do like the idea of the more complex strategies, been reading a bit about Iron Condors in particular. I think once I understand the theory and execution of these I will try to use my existing "knowledge" of price action as you pointed out and start to make some demo trades as a learning exercise. What appealed in the first place was the smaller more incremental profits i.e. consistent revenue/diversification with (so the adverts go anyway) just a small amount of time daily monitoring the trades. Of course, you have to go through the learning process first of all, but that's the case for everything in life.

 

The other option I have is signing up to a service like redoption or condoroptions and learn through their trades. Platform-wise I've TOS paper money and like it so far so I think we'll just see how it goes. The long and winding road ...

 

cheers for taking the time to post

Al

 

p.s. with your example of a triangle and a breakout - I was going to ask what stops you closing the position after the breakout ... why wait a week for it to retrace. Why not wait for it to hit a predetermined target and sell? If this is some basic options faux pas that I've yet to learn and the answer is obvious then just ignore it... I'll figure it out in due course, otherwise I'm interested to know the answer.

[jeffh0821 10]

altradelab,

 

I am in a similar position as you - getting my feet wet in the options game. I made the same observation as you just did in your last post. I think far too often people get caught up in the "unlimited profit, limited risk" notion of options and their premium and they start swinging for the fences. I have had modest success with strangles/straddles in this market - but with what I think is a small profit target. My trading system automatically exits a leg of a position when I hit the predefined target - no questions. That means I miss out on a lot of additional profit as the underlying moves for me - but I don't have the heartache when the underlying retraces and I lose that value + the loss of time value.

 

I'm still experimenting with a very tiny sandbox account and some paper trades. Real basic strategies right now: strangles, straddles and what I call "biased" straddles. Basically I set up a straddle where the ratio of call to puts indicates my bias towards a certain movement in the underlying. If the movement goes my way I generally get profit accumulation faster than if was to move against me - but in either case I have a small profit target and take it as soon as it is hit.

 

Perhaps some others have better advice or methods to learn options trading. I'm certainly open to suggestions.

 

- Jeff

[NoSquigglyLines 10]

jeffh0821,

 

Thanks for your post. I've been a bit involved with my futures trading of late and haven't spent as much time on this as I'd like. However, will be building this up in the first half of the year and will see where I get to.

 

Hopefully I can add some observations on this thread further down the line.

[zdo 20]

altradelab,

 

Who makes money? - the insurance company or the policy holder?

I played the ‘fools game’ in options until an old coot pulled me aside one day back in ’89 at one of Pruden’s SF meetings and convinced me never to buy premium again.

 

Rather than learning all the insects, birds, and other option creatures, imo it is better to just simply learn how to sell premium into net delta close to zero and from there learn how to bias and hedge your position for trends and swings, etc. Bear in mind, the zero net delta is like the footing / foundation – which needs to be sound – but the ‘living’ dynamic, utilized part is the biased structure built on top of it.

 

It’s not very exciting. Laying traps for suckers is a patient, boring, lowered leverage activity compared to the thrills of trying to outsmart all the Greeks at once / avoid being one of the suckers.

 

I'm aware this is probably not the kind of information you were looking for but with options we really don't really have many options for actually making money on a consistent basis...

[NoSquigglyLines 10]

altradelab,

 

Who makes money? - the insurance company or the policy holder?

I played the ‘fools game’ in options until an old coot pulled me aside one day back in ’89 at one of Pruden’s SF meetings and convinced me never to buy premium again.

 

Rather than learning all the insects, birds, and other option creatures, imo it is better to just simply learn how to sell premium into net delta close to zero and from there learn how to bias and hedge your position for trends and swings, etc. Bear in mind, the zero net delta is like the footing / foundation – which needs to be sound – but the ‘living’ dynamic, utilized part is the biased structure built on top of it.

 

It’s not very exciting. Laying traps for suckers is a patient, boring, lowered leverage activity compared to the thrills of trying to outsmart all the Greeks at once / avoid being one of the suckers.

 

I'm aware this is probably not the kind of information you were looking for but with options we really don't really have many options for actually making money on a consistent basis...

 

 

Thanks for this. I would be lying if I said I understood all your post at first read ... but as I said, it's still very early days.

 

I did understand your analogy though and managed to do some intensive googling to complement it.

 

Stick with my simple explanation if you will ...

by selling premium with a net delta close to zero you are looking for the lowest probability that they will ever go in the money. I guess you also have to monitor the margin reqs as you want to minimise risk as much as possible given that (as I understand it) it will be significantly in excess of the premium.

 

At this point I get a bit more confused (I do have Natenberg's book in the mail though along with a couple of others!) ... as some of the 'option creatures' also place a high emphasis on being delta neutral. I guess they are not just selling premium? In addition to this, and as you said, the real skill here is learning to bias and hedge your position (and I guess this could be in the underlying instrument e.g. stocks, futures instead of options) without overtrading/overthinking in order to come out smiling the other end.

 

Actually, I'm not sure I've actually done anything here except regurgitate your post so apologies for that. I don't think I have enough understanding of this to engage in discussion. Can you elaborate any further or point me towards any resource online or in print? If not I will comment further as my education progresses ...

[jeffh0821 10]

altradelab,

 

I agree with you on zdo's posting. It is very cryptic and not what I would call constructive for what you are trying to accomplish. I disagree that you cannot make money with options on a consistent basis. It just depends on how you use them.

 

I believe (hope may be a better word) that you and I are on the right path. Start simple, don't buy into the hype of "unlimited profit, limited risk" that less scrupulous brokers may advertise and find out what works for others and what you are comfortable with. I am personally happy with what I have achieved to date. Am I destroying the markets with astronomical returns? No, but I am happy with what I am doing and I continue to learn at the same time. Perhaps in a few months I'll learn something new and gravitate away from options.

 

A "old coot" once pulled me aside and said that learning comes through practice, not results. I'm going to go ahead and keep plugging along.

 

-Jeff

 

PS. The recent decrease in overall market volatility (see a chart of the $VIX) is causing the premium on one of my positions to drop with no real corresponding move in the underlying. Learning: Even when the underlying moves in your direction - other market attributes contribute to the pricing of options. Be aware.

[Soultrader 12]

I have been told by a veteran options trader here in Japan that one of the best educational courses on options is the free course offered by ThinkorSwim. The guys who created them are actual successful traders and was recommended to me. Not sure if its still available but worth a look.

[zdo 20]

altradelab and Jeff821,

You’re right - It was not a post helpful to premium buyers. Imo, though, beginning option players should be at least aware of the option of being only a seller of premium and that was the motivation of my post. I don’t have much else to contribute re buying premium except one (untested) little diddy if you want to pm me.

If buying premium is your game - play on man. I can relate. I wish you all the best.

 

altradelab, if you are already trading futures, you might consider getting your option ‘kicks’ by using them as stops… particularly if you have time constraints that force you into using longer time frames for your positions. re your guesses – using seasonals and cycles, I sold mostly covered (got naked a few times like a dumbass) premium on bonds and hedged day to day / swings / extremes even further with futures... boring... and boring returns too...

 

re “Cryptic” Here’s hopefully some plainer English… Option sellers take the most money – because the math is in their favor AND, by a slight margin, they tend to be more careful and loss averse. I.e., as a rule, they are more conservative, experienced, “practiced” and, in the same vein, are also a little less ADHD than premium buyers. So, Jeff, re: “ Am I destroying the markets with astronomical returns? No, but I am happy with what I am doing and I continue to learn at the same time.” If indeed you can be happy with smaller but consistent returns instead of homeruns, who knows you might be a candidate for being a premium seller … be aware though, it is not a game for ‘continual learners’

 

re:

PS. The recent decrease in overall market volatility (see a chart of the $VIX) is causing the premium on one of my positions to drop with no real corresponding move in the underlying. Learning: Even when the underlying moves in your direction - other market attributes contribute to the pricing of options. Be aware.

In its immediacy, this is a perfect example of the premium buyer's need “to outsmart all the Greeks at once /… “