Option plays on swing trades

[ckait]

I used to swing etf's options before I switched to futures. Now this was just my experience, I would get into a position it would make a small correction then move in my intended direction yet do to bad fills and other factors the premium would rarely mak it back to my initial investment where as the futures prices at the same move would have made solid pfofits. Just a thought before you switch instruments, besides over the last year your insight has become respected by myself and many others. Good luck and am looking forward to the swing Thread.

[TinGull]

Not sure if you comments about insight being respected was directed towards me or brownsfan, but I'm gonna take it as a compliment to both of us...why not

As for what you said....yes, you're exactly correct in that an option can just erode as the instrument moves in the expected direction and you will not make money. That's why it's so important to understand the concepts of volatility and understand how much time premium you're paying for and knowing how much time you're going to give that instrument to hit it's intended target.

If the premium is real high (IV is way up) then you're gonna want to sell a bull put spread or something of the like. If premium is really low and you expect a move, buy the options outright. Plenty of people that do that and make money...they just know when the right time to buy is.

[ckait]

Yeh the comment was for you, no disrespect to browns fan he's top notch, and your right about option timing, thats exactly why I perfer to trade futures it a little more forgiving in my opinion.

[brownsfan019]

Good points ck. There is an issue with options in that you can lose money even if your analysis was correct about the underlying stock/etf. That was probably the biggest reason why I stopped trading them and moved to futures as your comments have shown. And that is probably why I've always been hesitant to get back into the options game.

[TinGull]

But, with the right knowledge in your toolbelt, options can be a great way to make money. Just always gotta know if you're getting a good price for your options, and not just buy calls or puts based on the underlying without knowing the volatility behind them.

[Nick1984]

I guess a discussion on Blach-Scholes would be good for options trading. Options are a complicated instrument to trade, however if used correctly can be very rewarding. I personally don't like them too much. The time wasted in searching out options on stocks is highly time consuming, even with a sniffer out there working for you. My 2c though

[TinGull]

Here's a great example of how buying calls can go wrong....



This is all inside a spread I've been holding and I'm watching value go down when it should be going up...thinking, what the heck is going on here? Note how the calls I bought (far OTM strikes) are holding less value than the ones I sold, but the price of SPY has been going up. Interesting to note how this can happen when volatility goes down. I sold these when IV was around 22.5% and now is at about 20%. Am I currently getting hurt by that? Absolutely. But the time premium should erode here quickly on that sold call giving me what I need.

[aiki14]

I play options all the time, but mostly to protect profits, minimize downside risk when holding long stock positions, and to fund those protective puts by being short well out of the money calls. I occassionally will play straddles into earnings if the price is right, GS straddles have been nice gains 5 of the last 6 quarters.
I think of them as another arrow in my quiver. I do not believe the risk reward sets up well for most swing trades. If the trade goes against you it can result in a bigger loss than holding the stock, and the time constraints can work against you as well.