Do We Really Need Strategy to Max. Our Profit?

[ticks 10]

Sorry for any delay in posting replies. It seems that my posts are delayed -- I guess for "non-participation". Hopefully this will not be the case or I will continue to not post.

 

Now as to some answers -- First I have been trading for a long time as many others here I am sure. Now as you all know experience can sometimes be the best teacher but Not Always. So enuf on all the posts trying to figure out whether or not this strategy works. For me It Does. I have taught some friends and relatives how this form of gamma scalping and the other strategy of pairs trading works and they are also using it profitably. So that should indicate that I am not so skilled or have some extraordinary commission deal. I do pay low commissions but only because of trade frequency and account size. Others are doing it with standard commissions available to all. OK what do you think I have left out?

 

Here it is. For the gamma scalp type of trade (if you want to call it that) I enter a trade so that the Delta is close to zero or neutral. So immediately after the trade has been entered the delta changes with time, price of underlying, and volatility. What does this change in Delta tell us? It indicates that there must be a profit available for the taking or at least some profit on one side of the trade. Remember I have both sides as if I was in a strangle. But I am not using options only. In other words I did not create the strangle with buying or selling both sides with calls or puts. Instead I am Long or Short a futures contract that gives me a delta of say + or - 50. If I am long the future for 1 contract I have a +50 delta for that long ES contract. OK there are several ways to play this and that is some of the skill. So I can the buy 2 ATM (at the money) ES Put options. These each have a delta of 25 so 2 of them equals - 50 so now I would be Delta zero or close to that and thereby I am not concerned about immediate market directional movement. Got it so far I hope...

 

So now the underlying ES future goes down in price say a few points. If you had just traded the future long with a 2 point stop (quite common stop size for directional trader or scalpers) then you are stopped out with a loss of $100. But I would have a gain on the puts and my net position would be a profit on the puts and a loss on the future -- so you might say that this is stupid as I do not have a net gain on the position. But markets are cyclical -- the ES goes down say 2 points but eventually it will go back up (hopefully sooner than later) Now it helps to be able to have some experience or tools to predict the turning points (which I definitely do have) but even if you just traded it with the change in delta as you key to take the profit off you can make profits doing this. So say the delta alerted me to find the profit -- because the delta went from approximately zero delta to -10. That is Minus 10 deltas. If you understand how options are priced you know why that change in delta means a change in the value of the options contracts. If you don't follow so far let me know and I will show you how to learn this. OK, so now I sell the options (Puts that I originally bought) and then buy further OTM options to replace the options. I have captured the profit because my original options are now worth more than the ones I buy to replace those I just sold. SO -- I am not back to a delta neutral position on the trade. Again the delta changes with movement of the underlying futures contract. And ahaaa I have another opportunity to profit. I am never stopped out. I am always in the game with the opportunity to make more money. Can I lose on this? Sure. If I am not capable of taking the profit when the market offers it to me then I will lose. Commission costs can be a factor but if you are paying a dollar or so for an options trade then the costs are minimal.

 

Tricks: What tricks? I use the broker platform (TOS) to manage and show me the trade pictorially using what is called the "Risk Profile" -- this shows me my breakeven points on the trade and also the position Greeks including of course the Delta. I can track the P/L on there too. I can trade right from that same setup if I choose to.

 

One trick if you wish to call that a trick is proper order entry both from where is the best location to enter based on price action and how to obtain the Mid-Price on the bid/ask spread as shown on the option chain.

 

Does this help to clarify? It has nothing to do with "miss-priced" options. (In today's near perfect electronic markets there is really no mispricing and if somehow there was you as a retail trader could not take advantage as it would be immediately "arbed out",

 

So now the problem to communicate this is to most is their lack of understanding of option pricing and or their lack of understanding of market dynamics. This is short term trading on say 5 min charts. (I do long at 3 time-frames though).

 

Ask any questions. Tell me when you did this and it "did not work for you" and be specific please and then I believe I can better answer your questions. To say that you tried this years ago and it doesn't work is not really saying anything.

 

Now as to some who asked me why I don't post often -- the answer is I trade for a living -- I don't get paid to post. It is often surprising to me to understand why some post thousands of posts here and in other forums. I guess they never learned to play golf.

 

Hope this helped.... and hope you are all having profitable fun while trading.

[ticks 10]

Wow -- that last post was immediate.

 

Thanks to the Moderator!

 

Love ya....

[ticks 10]

Oh I forgot to mention the danger (but yes it can be more profitable) to "leg in and out".

It is dangerous because if you hold to the belief that the markets are rather unpredictable or perhaps random -- then you are entering the trade without having both sides on (both long and short the market) and hence you could incurr a big loss with a rapid moment against your only side of the trade (one leg of the trade).

[MightyMouse 12]

 

Does this help to clarify? It has nothing to do with "miss-priced" options. (In today's near perfect electronic markets there is really no mispricing and if somehow there was you as a retail trader could not take advantage as it would be immediately "arbed out",

 

If you are not taking advantage of mispricing, and if you know when the market is going to turn with your tools, then why not wait until the moment your tool is telling you that the market is going to turn and take a position in the direction of the turn, rather than take both sides of the market, pay two commissions, and possibly pay two premiums? Futures trade at both premiums and discounts to underlying. in some cases you are trading both sides with time as a cost.

[ticks 10]

If you are not taking advantage of mispricing, and if you know when the market is going to turn with your tools, then why not wait until the moment your tool is telling you that the market is going to turn and take a position in the direction of the turn, rather than take both sides of the market, pay two commissions, and possibly pay two premiums? Futures trade at both premiums and discounts to underlying. in some cases you are trading both sides with time as a cost.

 

Dear Mighty One,

 

I do not have a tool or indicator that gives me ABSOLUTE turning points. If I did I would agree with your fine post. I do use some Market Awareness (tools if you wish to call them that) that shows me perhaps some "better" or possibly refined exits on trades. Now I don't have the interest or time to debate with you -- even though your comments are cogent and perhaps benefit discussion or questions. However, if you thought or if I. in some way led you to believe. that I could accurately and consistently pick market turns -- then I appologize for that. Please refer back to my posts and perhaps send me a quote where I did that and then if you or others can show me how to edit it out -- I shall do so.

 

Now to clarify the fact that the time decay of the options cause problems in this strategy -- please understand that I am only in the options for a very short time so time decay is almost not a factor.

 

If you wish to trade directionally and can do that consistently profitably using stops then your way is Better. I and most others (last broker statistic is 97% of those who scalp futures lose and are leave the broker in less than a year) -- so I respectfully ask that if you can teach me the way to beat those statistics and trade directionally with stops please teach me -- I am willing to pay your price for the instruction.

 

Hope this answers.

 

By the way -- no animosity toward your post is intended. So please do not take offense for my reply. It is a bit annoying when you take the tone in your response that the OP is somehow so lame as to not recognize that fewer commissions are of importance. Thanks though for pointing that out as it may offer clarification to others that may foolishly be reading here with the quest to see if there may not be some merit from those who post with the intent to genuinely perhaps help others.. If you don't find value then sorry for taking your time. Thanks...

[ticks 10]

Mighty Mouse, this is the most ridiculous thing I've ever heard. All you are doing is giving extra commissions to your broker. First of all - what if the Market keeps going against you on remaining position where you already have unrealized loss ? Second - why execute two trades, if like you say you are waiting for some sort of cycle to appear, just watch the market, and according to you....once it swung one way enough to where you feel it is ready to go the other way - just execute second part of the trade. Don't you realize that you are not gaining anything by doing two trades here ?

 

When someone writes something like this....I know this is a guy who just started trading and is still looking for an edge of sort, in the place where it does not exist.

This is simply funny.........

 

Thanks for the comments. Pleasure is mine to be the recipiant of your first and only post!

[ticks 10]

Mighty Mouse, this is the most ridiculous thing I've ever heard. All you are doing is giving extra commissions to your broker. First of all - what if the Market keeps going against you on remaining position where you already have unrealized loss ? Second - why execute two trades, if like you say you are waiting for some sort of cycle to appear, just watch the market, and according to you....once it swung one way enough to where you feel it is ready to go the other way - just execute second part of the trade. Don't you realize that you are not gaining anything by doing two trades here ?

 

When someone writes something like this....I know this is a guy who just started trading and is still looking for an edge of sort, in the place where it does not exist.

This is simply funny.........

 

Thanks for your useful post. I am glad that I gave you a laugh :rofl:

Perhaps you and the others who prefer stops might enlighten me by posting what size stops you use in your trading of the ES? Thanks...

[BlueHorseshoe 10]

OK what do you think I have left out?

 

Ticks certainly seems willing to be open about what he's doing and share information . . . Maybe someone with a better understanding of options could pick through this latest post and comment?

 

BlueHorseshoe

[MightyMouse 12]

Dear Mighty One,

 

I do not have a tool or indicator that gives me ABSOLUTE turning points. If I did I would agree with your fine post. I do use some Market Awareness (tools if you wish to call them that) that shows me perhaps some "better" or possibly refined exits on trades. Now I don't have the interest or time to debate with you -- even though your comments are cogent and perhaps benefit discussion or questions. However, if you thought or if I. in some way led you to believe. that I could accurately and consistently pick market turns -- then I appologize for that. Please refer back to my posts and perhaps send me a quote where I did that and then if you or others can show me how to edit it out -- I shall do so.

In your prior post you did imply you had a tool: " Now it helps to be able to have some experience or tools to predict the turning points (which I definitely do have) but even if you just traded it with the change in delta as you key to take the profit off you can make profits doing this"

 

Now to clarify the fact that the time decay of the options cause problems in this strategy -- please understand that I am only in the options for a very short time so time decay is almost not a factor.

 

If n days are the number of days left of time decay and you are in for only 1 day then your time decay factor is 1/n. When you have taken that trade or similar trades enough times so that your days trading n days, then your time decay becomes similar to staying a trade for the n days; unless, again, the market is making a mistake. In short, in the long run, you will not escape the cost associated with time decay.

 

If you wish to trade directionally and can do that consistently profitably using stops then your way is Better. I and most others (last broker statistic is 97% of those who scalp futures lose and are leave the broker in less than a year) -- so I respectfully ask that if you can teach me the way to beat those statistics and trade directionally with stops please teach me -- I am willing to pay your price for the instruction.

I do use stops and I do make money, and in using stops I do take losses. In fact, most of my entries end up losing. I am not afraid to admit i am wrong when I am wrong. I am trading over 30 years and futures for over 5 years. Over the last 12 years i have had 2 losing years. Over the same period i have had what i call good luck- sometimes awesome- and bad luck- the type where you don't want to leave the room until everything is destroyed- and I am ahead by a handsome amount.

 

The dream of taking a "paycheck" ended a long time ago as did the dream of 100% gains every year. Those years are awesome, and I have had them, but they do tend to eventually level out.

 

I am not an instructor and do not seek anything from anyone.

[SIUYA 11]

[quote=ticks;184013

 

Here it is. For the gamma scalp type of trade (if you want to call it that)

 

Yes please call it that because it is called gamma trading.

The continuous re hedging if an option position as the delta changes with changes in the underlying instrument.

 

It is nothing new - it can be a profitable strategy.

...and blind freddy can actually do a pretty good job of it.

If you have a good feel for the markets and are actually pretty good at picking turning points etc - then all the better.

 

However - time decay will harm this and what you are effectively doing is trading the implied vol you purchase the options at against what the historical volatility is, or becomes.

 

There are tricks to this, and there are also a lot of traps, so as with most things it is not as straight forward as it may seem. Ticks admits there are skills, and tools required. (He even offers one )

 

One of the things the trader must keep in mind is this - hedging a call means you actually have a put and a call now. If you dont understand that - then learn the basics. Its worth it.

 

Given that you are competing against market makers there is likely to not be a lot of miss pricing and you will have to take a view on what value is to be had when purchasing the options.....when you roll you will pay across the spread and commissions do need to be watched closely.

If you only hold the options for a short period of time - regardless of what people say - the spread crossing for entry and exit will eat up a lot of PL - as will time decay if you do hold the options for a while. Even if you happen to only trade very liquid markets - just being able to achieve the mid price - the theoretical price - of an option spread will be crucial. (these days it is often better being a price taker than a price maker but dont believe there are not miss priced options, there are - there are also people crossing spreads that is why market makers do their job...not as a public service.)

 

Additionally the best thing that can happen is to be very selective on which options strikes and series to trade, and to have a good move immediately upon buying hedged options.

 

......the real advantage to this type of trading is simple IMHO.

Once you do master it, understand the tricks, skills and tools - it is very easy to leverage up the trading with not a lot of extra risk, and with less worry and decisions than pure directional trading. What you are basically hoping for when having a large position on is a black swan event. The event that moves so quickly you dont have time to hedge!

Brilliant when you can get it.

 

...............

[bobcollett 10]

 

 

......the real advantage to this type of trading is simple IMHO.

Once you do master it, understand the tricks, skills and tools - it is very easy to leverage up the trading with not a lot of extra risk, and with less worry and decisions than pure directional trading. What you are basically hoping for when having a large position on is a black swan event. The event that moves so quickly you dont have time to hedge!

Brilliant when you can get it.

 

...............

 

Hi SIUYA

Ticks tells us he makes money with his hedging.

And it makes sense to me.

 

Which immediately has my attention.

 

MM states all the negatives , and its not the first time he has questioned pairs trading on TL

Now you and zdo have been corresponding, :roll eyes:so I understand a certain amount of rhetoric will creep in......but whats the bottom line,is the method worth some time?

kind regards

bobc

[ticks 10]

You are CORRECT MM. Sorry that the emphasis should be on the experience which is really what some might call Market Awareness, Tape Reading and knowlege obtained from Harmonic Swing lengths. I will be happy to elaborate on the use of all of this experiencial "knowledge" but I believe it might detract from the message that all one needs to be successful is trading the change in Delta. As you know MM, the delta of an option will increase or decrease by the underlying price moves as well as the Gamma and changes in Vega. Since I am both long and short the market and making "adjustments" based on the Delta the Volatility component really is not too important. The time decay factor is hardly a factor either since my average trade is less than 1 hour. The KEY factor is that I am trading the POSITION Delta and that change in position delta includes all the other greek exposures to risk. When the delta of the overall position changes it Indicates a profit that may be captured. Even if you are just trading futures without the so-called hedge and use stops as your protection instead you are making a decision based on something to take profits; However sometimes you have a profit and don't take it because you believe that there is more profit coming if you stay in the trade -- then the market may reverse and so you lose that profit opportunity. If you grasp what I am doing I "Lock-in" that profit but remain in the trade. Yes, Thank God or at least the "trading gods" that Skill, Discipline, Rules, mechanics -- are all required for maximum success. But if it is true that few really make any money by scalping the futures or forex (Reports by Tom Sosnoff and other well known brokers substantiate this to be in the area of 95% loose). As a side note -- one well known broker told me that his firm does not even want a trader with a small account, since he knows that he will just be "churning clients" and the small account guy who is trading futures will be gone within 6 months.

 

So if these statistics on loss by the average retail trader is at all correct -- why is that the case? Don't they all have access to indicators, moving averages etc. ? Don't they read books and take courses and seminars from Guru Traders? What do most of them have in common -- they all believe in stops. Stops may be a valid "tool" for those that cannot watch the markets realtime but they should not be attempting futures trading for the most part. Now we that have "been there and done that" know it does not work. Here is another thing that most do not know that attempt to trade options -- yes you MM and others on this board know it -- that is the simple fact that you cannot lose more than you paid for the option when you trade a future against the option contract at the same strike. This simple fact is very powerful. Also you can re-use the option without any additional cost as a substitute for a stop. So let's say you buy further out option expiration's and then your time decay is minimal -- true you pay more for the option but so what as when you cash in the option fairly quickly you have not even held it for 1 day. Additionally, I can if i wish hold overnight -- no directional day trader would ever do that for fear his stop will be hit with a gap or overnight trading action. So I am only trying to give complete information here -- not trying to win a battle of what works and what doesn't.

 

If n days are the number of days left of time decay and you are in for only 1 day then your time decay factor is 1/n. When you have taken that trade or similar trades enough times so that your days trading n days, then your time decay becomes similar to staying a trade for the n days; unless, again, the market is making a mistake. In short, in the long run, you will not escape the cost associated with time decay.

 

Please see the above MM regarding why and how the Time Decay is not really a factor.

 

I do use stops and I do make money, and in using stops I do take losses. In fact, most of my entries end up losing. I am not afraid to admit i am wrong when I am wrong. I am trading over 30 years and futures for over 5 years. Over the last 12 years i have had 2 losing years. Over the same period i have had what i call good luck- sometimes awesome- and bad luck- the type where you don't want to leave the room until everything is destroyed- and I am ahead by a handsome amount.

 

I am pleased MM that you are among the few traders that can make money using stops. What size stops on the ES as an example please?

 

Thanks to you all that have responded with your good points for discussion...

[ticks 10]

Sorry all for the blue highlighting and not knowing how to better reply using the quote tool. I am not used to posting so need some help on how to use all the posting tools. Any suggestions on where to learn that would be appreciated.

 

Thanks

[MightyMouse 12]

 

I am pleased MM that you are among the few traders that can make money using stops. What size stops on the ES as an example please?

 

 

Ticks,

 

I don't scalp es. In fact, at this point I am not scalping at all. I need a great deal of volatility to make it worth my while and over the last months and years, the volatility has been pathetic.

 

I do take longer term trades and when I do trade es longer term, i generally use an 8 pt stop. Longer term means staying in for as long as a week or so.

 

I am not implying that I can look at any market and trade it profitable. I can, however, look at a market and know if I should or shouldn't trade. There is a huge difference.

 

 

MM

[ticks 10]

MM

 

Thanks for your sharing your current trading style.

 

I agree with you that the current volatitiy sucks. I understand that when vol is low that premiums are lower when you are primarily a seller of vol.

 

The method I have described here (btw not the only one I trade) works even better in a high vol environment since the swings are greater and more frequent. The greater the swings and the more frequent the turns the better, easier, and more profitable is the method that I described which some might call gamma scalping. (However, the way I am doing it is not "pure" gamma scalping. With more frequent swings and greater momentum then the more opportunity to quickly take profits on the "winning side".

 

So you are willing to hold for a few days or a week with an 8 point ($400.on the ES) and your return on margin or buying power reduction in your account is small compared to your potential win. Risk to Reward is probably excellent if you are looking for say a target of !200 per trade.

 

Thanks for the critique you have made and your posts.

 

Now that I am able to post without the previous monitors delay, I might be able to post some more info including a way I am working on to post live trades without slowing my trades down or losing focus -- just so I can prove a point here.

 

One of the posts here on this thread was from someone you posted very astutely and he said that he had done this trade himself without good results. I can't recall who was the OP but I will be happy to hear Why he used it unsuccessfully. Perhaps I could offer some insight on what changes could be made to his way of doing this trade.

 

Perhaps this thread has reached exhaustion -- if so those who are following should let me know.

 

Thanks to you again, MM, and other posters.

[SIUYA 11]

Hi SIUYA

Tbut whats the bottom line,is the method worth some time?

kind regards

bobc

 

Yes....it is not fool proof, and has some pitfalls (you can loose despite what some might think - you do need to understand about options, volatilities etc;, choose strikes and series carefully, and there is definitely still an element of anticipation/prediction required)

 

Tics - I suggest a new thread if you wanted to give examples. This one is about different things originally....it might lessen any confusion.

I would be happy to help there with any experience I have had in this regard.

[ticks 10]

Hey guys, I received your PM's and have sent replies. Thanks, Ticks

[ticks 10]

Yes....it is not fool proof, and has some pitfalls (you can loose despite what some might think - you do need to understand about options, volatilities etc;, choose strikes and series carefully, and there is definitely still an element of anticipation/prediction required)

 

Tics - I suggest a new thread if you wanted to give examples. This one is about different things originally....it might lessen any confusion.

I would be happy to help there with any experience I have had in this regard.

 

Siuya and Bob C -- I started trading early pre-market so I am still busy this early morning but will hopefully figure out with your help -- how to continue this in another thread. Will need some help doing that since I am not good at the mechanics of posting. I don't post frequently -- as you can see by the ratio of years on this board and few posts. But I do believe that I should share with seems to me a worthwhile trading system. (No, this is not leading to selling anything!)

l l

YES, what I am doing profitably does require some background on the metrics of options. FWIW -- it usually takes years to comprehend trading and all of us who are serious about it are "forever learning". But (really a big BUT) we should not get in the trap of looking for the holy grail. Each of us has to have a "fit" for us to be successful. That is we need a "Comfort Zone" that the method provides...

 

Thanks for all your comments and I look forward to any help with a new thread of the continuation of this one. Happy to get your PM's or comments here.,,

[SIUYA 11]

I opened up this thread.....

http://www.traderslaboratory.com/forums/options-trading-laboratory/16954-gamma-trading-variations.html#post184078

[ticks 10]

I opened up this thread.....

http://www.traderslaboratory.com/forums/options-trading-laboratory/16954-gamma-trading-variations.html#post184078

 

Thanks Siuya, Great job in moving this to your thread.

 

Hope you get some response from all but the usual suspects.

 

BTW where is "Sunny London" ?

[SIUYA 11]

I also consider it your thread as well Tics - I just made the job easy for you.

As for where is sunny London - tongue in cheek for London UK.

There has been a two week heat wave of late, but normally its just a bit dull and grey.

[wmck6167 10]

........... I am trading over 30 years and futures for over 5 years. Over the last 12 years i have had 2 losing years. Over the same period i have had what i call good luck- sometimes awesome- and bad luck- the type where you don't want to leave the room until everything is destroyed- and I am ahead by a handsome amount.

 

The dream of taking a "paycheck" ended a long time ago as did the dream of 100% gains every year. Those years are awesome, and I have had them, but they do tend to eventually level out.

 

I am not an instructor and do not seek anything from anyone.

 

Wow, over 30 years of trading. You shall be trading with a lot of passion. Did market give you any impressed positive feedback? Do you reach your goal or dream yet? Thanks.

[Ammeo 10]

For Scalpers and day traders there's not much of a strategy needed imo. For swing traders and long term investors a strategy is a must otherwise it'll be very hard to achieve the predicted goals.