Let's talk about options

[Let's talk about options]

Save_trader,

 

Sideways markets can be difficult to deal with at times. I like to trade products that move consistently over time. I have my watch list of 10-20 names that I track all the time. These are names that all show a 65-70% win rate going back a few years. I don't change my watch list all that often. This way I don't have to be a great stock picker all the time. I focus in on the volatile names and trade them knowing that I will have losing trades or even losing streaks from time to time. By looking at the same names I get to know how they move and also get to know their options.

 

Once you get more advanced with options there are certain strategies that you can use in sideways moving markets. Putting on a calendar spread or an iron condor are strategies that you can use when the names on your list aren't moving much. If you setup your watch list correctly then you shouldn't have too much time where you are stuck in sideways markets with nothing to do.

 

The bottom line is you need to decide what type of trader you are. If you are a directional trade then make sure you are trading names that have good volatility. If you like to use premium collection strategies then use names that are less volatile and stay in predictable trading ranges. Hopefully this makes sense.

 

Hi cuttshot

 

This makes really sense. Thanks a ton for the idea.

 

As I trade options on futures, I will make this selection in the future market. Until today, I only changed time frames to see different charts from the same underlying. I then saw some times in bigger time frames sideway ranges and in smaller ranges I could trade some directional moves.

 

Choosing the right options ( Mainly strikes and expiration ) for different time frames. Time frames like two days, two weeks or one months. If you leg in a strategy for example on a two week time frame ( For example a condor ), what option expiration do you choose for this ?

 

Doe's any one like to share his experience about that subject or any good comments or ideas about it ?

 

Save_trader

[Let's talk about options]

I really enjoyed working through this thread on options. Trading options has been very profitable over the years. I have traded many different strategies but have really found my sweet spot with simple strategies such as straight calls and puts as well as vertical spreads.

 

Options can become very complicated quickly. There were a few posts in here about how different premium collection strategies can work very well in many different conditions but then when the market changes you can just get pounded. This is the problem with some of the advanced strategies. You might win 4 out of 5 times but on that one time it doesn't work you wipe out all your profit from the winning trades.

 

The reason so many people get intimidated by directional trading is that they don't have a system that gives them a consistent edge. Let's face it there aren't too many people that know how to pick direction over time. If you have a system that gives you an edge you can make some impressive returns by using very basic strategies.

 

If you are struggling to profit with options I would encourage you to keep things very basic. Don't over analyze things. Trade what you know and understand and the profits will come.

 

Hi cuttshot

 

Thanks for your post.

 

Systems and directional trading. Systems for trend trading is not a problem. Good MM and clever stop loss can handle that.

 

Systems for side way markets are a more sophisticated problem. Do you have any comments or ideas or experience with good systems on side way markets ?

 

Save_trader

[Let's talk about options]

Hi MMS

 

Thank you and thanks to thalestrader for the help and ideas.

 

I hope war does not come with this stupid guys in Nordkorea. Any way, As I went over the TP yesterday, I also added the ATR approach. You speak about the risk approach on the stock by itself. If I analyze the IMV and the history volatility and then use this to set a stop loss point, would that not be enough ? Beside that,I plan for each trade a so called " worst case SL ",which would be very far otm. This is just for the case, if market would go crazy.

 

The other SL would be build on the volatility approach which would give me a realistic idea, how far the underlying could move in a certain time frame. Price action is an other point to look at.

 

To the targets. I was thinking to work with fixed profit targets. Thanks to point that out. To spot and trade the trade, I would use price action combined with a trailing strategy.

 

The next point to clear for me is : How many positions should I take, when I enter a trade. Some speak about three position. The first one you take back when having the amount back you invested, the next one would be in the trend and the third one you let run. Three would be also good for the delta strategies, where I combine other derivatives in one strategy. The other open question is the adding, like the turtles did it in there trading. If the trend is moving, should I go in with more options or how to handle that ?

 

Any comments are welcome.

 

Save_trader

[Let's talk about options]

Hi MadMarketScientist

 

THANKS a ton for this strait forward words. My trading plan gets more and more clear.

 

It could look like that :

 

Check the volatility and the direction from the market. If up or down, choose directional trades or directional strategies. If the direction is sideways choose hedge strategy. Enter with one leg or use a math approach for sideways strategies. Choose a certain kind of stop loss which can be a fixed money amount or a certain move in the underlying.

 

If in the trade, check the volatility and the theta. Exit the trade, when in a loss, with market order or if placed a limit order for that stop loss, check if filled.

 

Now, what when the trade is in profit ? If the market is in a trend, do I go like in future trading and use some kind of trailing stop or should I hedge to save some profit or I even could add to the trade.

 

Any comments on that ?

 

Save_trader

[Let's talk about options]

Hi MadMarketScientist

 

Like your throwing ins. Thanks a lot as it has cleared some other mess on my table.

 

May I ask you, what you think about the mathematical approach in option trading. Some talk about the wings, which should be placed on a standard deviation point. They use also the bell curve in there explanations.

 

The idea behind that, is to enter a trade on such Stdv levels by placing limit orders there and wait until they are hit.

 

Any comments on that way of entering an option trade ?

 

Save_trader

[Let's talk about options]

Hi SIUYA

 

Again, THANK you very, very much for your detailed answers. It helps me a lot to clarify my thoughts about the subject.

 

I have a lot of option theory behind me. In the last few months, I improved my knowledge about different option strategies. I do have little practical experience in the market. Had some rough trades in the past by experimenting with strategies. Was also never really sure if I should implement a strategy leg by leg or by giving the broker already an order as one spread, for example a call back spread. After all reading I would say, that leg in is may the better choice. Any thought on that ?

 

I feel now again to be at the point, where I could implement trades in the market. It is like standing on the beach just before jumping in the water. To do so, I want and need to be prepared. At the moment I am in the water, I have to have clear thoughts about any move I am doing, in case a sudden storm comes up and I am no more near the beach.

 

Have a nice Sunday evening.

 

Save_trader

[Let's talk about options]

Hi SIUYA

 

Thanks for your clear thoughts and explanations.

 

I then would have some questions on the long buy part of options.

 

SL would be done % on the amount of money I have in my options account. Example : 10'000.-- and I choose 1 %. So my SL money would be 100.--

 

Or is it better to decide on any particular options buy, means ; I choose my SL on the price I have to pay for that particular option. Example : I have to pay 5000.-- I will choose 1%. So my SL money would be 50 and I would have to sell the option with 4950.--

 

Or as a last idea : Is it best to decide the SL on the underlying of the option ? If the underlying is by spot 9000 and I choose 1 %, I then would sell my option when the underlying is by 8910.

 

What is your opinion on that ?

 

Take care

 

Save_trader

[Let's talk about options]

Hi

 

Nice little option thread. By the way, are there any options on future traders here or are you all pure stock options traders ?

 

If so, the questions remains the same : What about starting a trade by selling an option and making a stop loss with the share or future ?

 

Doe's any one trade that way and how are his experience with that ?

 

Save_trader