What to choose : ITM Options or direct the future
Hi
I am a little stuck with this question :
Directional trading can be done with naked options and futures. Are there traders here which trade direction with itm options and why did you choose the itm options and not directly the future ?
Are there any strategy decisions behind that ( Hedging ) or is it just because you love options or what gives the advantage or disadvantage of choosing either options or the future.
If I think about the delta, I am clear that the future has a delta of 100 and the itm option between 51 - 100, depending how deep you go in the money. Theta, gamma and vega are other factors. The more delta, the more it moves like the underlying.
If you now take the risk to trade the deep itm option, you also have to apply your rules like you have to do when you take the risk to trade the future. You will also use a stop loss, you will define an exit point, you will define a trend follow rule and so on. With the stop loss you can define the risk and you can make that equal for the option and the future by risking the same specific amount of money.
So, what makes it worth to trade the itm option and not direct the future ?
What do I miss or fail to see in my considerations ?
D.S
I am a little stuck with this question :
Directional trading can be done with naked options and futures. Are there traders here which trade direction with itm options and why did you choose the itm options and not directly the future ?
Are there any strategy decisions behind that ( Hedging ) or is it just because you love options or what gives the advantage or disadvantage of choosing either options or the future.
If I think about the delta, I am clear that the future has a delta of 100 and the itm option between 51 - 100, depending how deep you go in the money. Theta, gamma and vega are other factors. The more delta, the more it moves like the underlying.
If you now take the risk to trade the deep itm option, you also have to apply your rules like you have to do when you take the risk to trade the future. You will also use a stop loss, you will define an exit point, you will define a trend follow rule and so on. With the stop loss you can define the risk and you can make that equal for the option and the future by risking the same specific amount of money.
So, what makes it worth to trade the itm option and not direct the future ?
What do I miss or fail to see in my considerations ?
D.S
Dan,
I always go ATM, because I know exactly what my risk is......per contract......its the premium I paid.
Buy ATM Put
Go Long YM ES or NQ
Right now YM(DOW) is outpacing ES and NQ
or.... not now but maybe soon
Buy ATM Call
short YM ES or NQ
Works great with the weekly ES options......
No stops let the machines take the risk.
I think the margin on ES with ATM put is $250.....So you can go in BIG!
I always go ATM, because I know exactly what my risk is......per contract......its the premium I paid.
Buy ATM Put
Go Long YM ES or NQ
Right now YM(DOW) is outpacing ES and NQ
or.... not now but maybe soon
Buy ATM Call
short YM ES or NQ
Works great with the weekly ES options......
No stops let the machines take the risk.
I think the margin on ES with ATM put is $250.....So you can go in BIG!
BTW I was referring to how I think futures options are best used for profit.
-Trade the future, buy the option for protection. They play alot of games with the fut options so its best to stay with high liquidity.....like ES and 6E(or EC in TS).
Because of the leverage options allow me to stay in the trade without a stop loss order and know exactly what my risk is.
I also sell puts (cuz trend is up) and thats profitable, but riskier as well. Even when the VIX is LOW ES puts pay about 12% whereas SPY puts only pay 4.5% for the same risk......no brainer huh? When the VIX is higher around 16+.......ES pays 20+%....PER MONTH.....what a racket......
-Trade the future, buy the option for protection. They play alot of games with the fut options so its best to stay with high liquidity.....like ES and 6E(or EC in TS).
Because of the leverage options allow me to stay in the trade without a stop loss order and know exactly what my risk is.
I also sell puts (cuz trend is up) and thats profitable, but riskier as well. Even when the VIX is LOW ES puts pay about 12% whereas SPY puts only pay 4.5% for the same risk......no brainer huh? When the VIX is higher around 16+.......ES pays 20+%....PER MONTH.....what a racket......
Hi Grednfer
What you talk about are synthetic call and synthetic put. An other way to trade direction and surely god ways to do so. I would question the delta of the option (ATM is 50 and why not reduce it to 20-30) and the way of implementation (Leg in). But this are other subjects and each ones like and choices. This then also would change the margin, as the risks would be variable.
As you say by your self : They play a lot of games with the fut options. I agree with you, as the possibility's are immense and that makes many confuse about what strategy to choose.
By the way, thanks to mention that : ""I also sell puts (cuz trend is up) and thats profitable, but riskier as well. Even when the VIX is LOW ES puts pay about 12% whereas SPY puts only pay 4.5% for the same risk......no brainer huh? When the VIX is higher around 16+.......ES pays 20+%....PER MONTH.....what a racket......"" I will check that.
Tc
D.S
What you talk about are synthetic call and synthetic put. An other way to trade direction and surely god ways to do so. I would question the delta of the option (ATM is 50 and why not reduce it to 20-30) and the way of implementation (Leg in). But this are other subjects and each ones like and choices. This then also would change the margin, as the risks would be variable.
As you say by your self : They play a lot of games with the fut options. I agree with you, as the possibility's are immense and that makes many confuse about what strategy to choose.
By the way, thanks to mention that : ""I also sell puts (cuz trend is up) and thats profitable, but riskier as well. Even when the VIX is LOW ES puts pay about 12% whereas SPY puts only pay 4.5% for the same risk......no brainer huh? When the VIX is higher around 16+.......ES pays 20+%....PER MONTH.....what a racket......"" I will check that.
Tc
D.S
The ES trade that I do (Long+Put or Short+Call) is my way of defining risk for the trade. My investment is the protection and when I go ATM the machines take the undefined risk, mine is precisely defined.
If I buy a lesser strike (or delta) the risk is increased to include the gap between the option strike and my entry price.....it may be cheaper to do so but I have other stuff going and I don't like to risk more than my planned investment-in premium.
This week was a good move......I got in ES at 1330 (there were several oppotunities to do this on Monday and Tuesday) and bought weekly 1330 puts for $350 per......my investment was $3500 for 10.....sold Friday for 30 points.....10 contracts * 30 is $15000. I usually do 10. The same trade on the DOW (YM) yeilded more.
NQ went into a stall pattern and yeilded the least.
So the way I look at the ES trade, the ROI was about 300% (15000-3500/3500).....its normally around 150-200%.....was kinda of a blow off. But at no time during that trade was my risk ever higher than the $3500.
The weekly puts really enable this trade along with low vix for cheap premium.
I've heard the CME actually has software that can package this trade at a defined price, but until I get my hands on that......I have to manually time the entry....once a week isn't bad.
If I buy a lesser strike (or delta) the risk is increased to include the gap between the option strike and my entry price.....it may be cheaper to do so but I have other stuff going and I don't like to risk more than my planned investment-in premium.
This week was a good move......I got in ES at 1330 (there were several oppotunities to do this on Monday and Tuesday) and bought weekly 1330 puts for $350 per......my investment was $3500 for 10.....sold Friday for 30 points.....10 contracts * 30 is $15000. I usually do 10. The same trade on the DOW (YM) yeilded more.
NQ went into a stall pattern and yeilded the least.
So the way I look at the ES trade, the ROI was about 300% (15000-3500/3500).....its normally around 150-200%.....was kinda of a blow off. But at no time during that trade was my risk ever higher than the $3500.
The weekly puts really enable this trade along with low vix for cheap premium.
I've heard the CME actually has software that can package this trade at a defined price, but until I get my hands on that......I have to manually time the entry....once a week isn't bad.
Hi Grednfer
I only can say : Hats of you, well done ! Do you mainly trade the ES or are you also active in other contracts ?
D.S
I only can say : Hats of you, well done ! Do you mainly trade the ES or are you also active in other contracts ?
D.S
I do not see an edit button for the other post and so I explain it here.
I recognize, that you also do trades in the Dow. So with other contracts I mean currencies or metals and so on.
I recognize, that you also do trades in the Dow. So with other contracts I mean currencies or metals and so on.
Hi,
Good trading. Let me know when the exchange releases their "black box" for options.
YM futures are my single focus. I am looking forward to your shared mutual interests.
Good trading. Let me know when the exchange releases their "black box" for options.
YM futures are my single focus. I am looking forward to your shared mutual interests.
Hey grednfer,
When you put on the trade ... are you, for example in the up trending market, buying 10 wkly ES puts and going long 5 ES contracts for "effectively" a delta neutral position ... or are you going in with 10 puts and 10 long contracts? Wasn't able to gather exactly what the strategy was. Also, when you mentioned the profit ... are you taking the net loss of the ES contracts matched against the Options when you close out the trade? I'd like to hear back from you on this, since I've been trading options for a while and am more curious about what delta you're looking at initially ... and if gamma, or vega ever nixes the trade by what you see as likely components of premium that look to be "too much". Also, if you could elaborate more on what your exit requirements/strategy is (under the assumption that you're not legging in or out.
When you put on the trade ... are you, for example in the up trending market, buying 10 wkly ES puts and going long 5 ES contracts for "effectively" a delta neutral position ... or are you going in with 10 puts and 10 long contracts? Wasn't able to gather exactly what the strategy was. Also, when you mentioned the profit ... are you taking the net loss of the ES contracts matched against the Options when you close out the trade? I'd like to hear back from you on this, since I've been trading options for a while and am more curious about what delta you're looking at initially ... and if gamma, or vega ever nixes the trade by what you see as likely components of premium that look to be "too much". Also, if you could elaborate more on what your exit requirements/strategy is (under the assumption that you're not legging in or out.
Originally posted by grednfer
The ES trade that I do (Long+Put or Short+Call) is my way of defining risk for the trade. My investment is the protection and when I go ATM the machines take the undefined risk, mine is precisely defined.
If I buy a lesser strike (or delta) the risk is increased to include the gap between the option strike and my entry price.....it may be cheaper to do so but I have other stuff going and I don't like to risk more than my planned investment-in premium.
This week was a good move......I got in ES at 1330 (there were several oppotunities to do this on Monday and Tuesday) and bought weekly 1330 puts for $350 per......my investment was $3500 for 10.....sold Friday for 30 points.....10 contracts * 30 is $15000. I usually do 10. The same trade on the DOW (YM) yeilded more.
NQ went into a stall pattern and yeilded the least.
So the way I look at the ES trade, the ROI was about 300% (15000-3500/3500).....its normally around 150-200%.....was kinda of a blow off. But at no time during that trade was my risk ever higher than the $3500.
The weekly puts really enable this trade along with low vix for cheap premium.
I've heard the CME actually has software that can package this trade at a defined price, but until I get my hands on that......I have to manually time the entry....once a week isn't bad.
Dan,
I trade NQ, ES, YM, GC, SI, 6E, ZS(SOY), ZW(Wheat) using this technique. Somewhat different for metals and comms but everything I do is based on Risk management.
Hunter,
I think the software is available but only to dealers....maybe soon they will do a "retail" release. You can still trade YM options manually, but few brokers allow folks to access those. In tradestation I have to have a separate "pit" account for the futures options....its funky.
Monkey,
I don't trade the futures options using normal option metrics....like delta.....bla, bla.....I just use them to establish my "floor"
So when I buy the 1330s in an ascending market, my principal challenge is to buy both puts and futures simulataneously.....
Its works well with ES because of the weekly options. If you buy 1 put contract for $350 with 1 ES future all you need is a tick over 7 points for profitability....and its usually better cuz you can still dump the puts.....for usually more than 0.
For example the 1360s closed Friday at $325 per for this week....which is a good deal.....but I try to wait for a low on Mon or Tues......
I go at-the-money and 1-1 coverage. Any time I can go ATM before Weds close for $200 per is a good deal also. I don't look at delta...don't care.....I care about cost and probability of upside.
Everything is silly high right now, but I'll keep trading the dips like this until it turns around...then its sell futures and buy ATM calls.
Like Silver---- with those 2 failures at 49 it looks like they've turned it........could be the signs of things to come. I don't reccommend practicing on SI at 25 per tick but the same technique applies to anything.......like SLV......short 100 shares and buy a call ($270) uses the same technique (in the trade cap the loss).....and the cost of those calls may fall away tomorrow given the 8% drop tonight....SLV is very liquid too....and its come so far.
Hope that helps....lemme know if you see any good ones.
I trade NQ, ES, YM, GC, SI, 6E, ZS(SOY), ZW(Wheat) using this technique. Somewhat different for metals and comms but everything I do is based on Risk management.
Hunter,
I think the software is available but only to dealers....maybe soon they will do a "retail" release. You can still trade YM options manually, but few brokers allow folks to access those. In tradestation I have to have a separate "pit" account for the futures options....its funky.
Monkey,
I don't trade the futures options using normal option metrics....like delta.....bla, bla.....I just use them to establish my "floor"
So when I buy the 1330s in an ascending market, my principal challenge is to buy both puts and futures simulataneously.....
Its works well with ES because of the weekly options. If you buy 1 put contract for $350 with 1 ES future all you need is a tick over 7 points for profitability....and its usually better cuz you can still dump the puts.....for usually more than 0.
For example the 1360s closed Friday at $325 per for this week....which is a good deal.....but I try to wait for a low on Mon or Tues......
I go at-the-money and 1-1 coverage. Any time I can go ATM before Weds close for $200 per is a good deal also. I don't look at delta...don't care.....I care about cost and probability of upside.
Everything is silly high right now, but I'll keep trading the dips like this until it turns around...then its sell futures and buy ATM calls.
Like Silver---- with those 2 failures at 49 it looks like they've turned it........could be the signs of things to come. I don't reccommend practicing on SI at 25 per tick but the same technique applies to anything.......like SLV......short 100 shares and buy a call ($270) uses the same technique (in the trade cap the loss).....and the cost of those calls may fall away tomorrow given the 8% drop tonight....SLV is very liquid too....and its come so far.
Hope that helps....lemme know if you see any good ones.
OOOOOO....
Its been so long since I traded stock......but in Thinkorswim this trade is called buying or selling "covered stock" and they will package the trade for you......but not for futures.....of course that option is greyed out.....so you have to work a bit.
Its been so long since I traded stock......but in Thinkorswim this trade is called buying or selling "covered stock" and they will package the trade for you......but not for futures.....of course that option is greyed out.....so you have to work a bit.
Monk,
I originally replied to the thread because the question was ITM options or the future and I wanted to share this technique of using both simultaneously....its been very profitable. But if I'm on the wrong side I have to exit and re-position and get with the trend.
How about that 50 failure this morning.....now I'm on the right side...sold 53s bought the 55 calls.
Although its working, I don't like trading SLV....it consumes to much cash.....a very smart person here in the office pointed out that if we had applied the same cash to last months NQ trades we would have made over $3M......
I originally replied to the thread because the question was ITM options or the future and I wanted to share this technique of using both simultaneously....its been very profitable. But if I'm on the wrong side I have to exit and re-position and get with the trend.
How about that 50 failure this morning.....now I'm on the right side...sold 53s bought the 55 calls.
Although its working, I don't like trading SLV....it consumes to much cash.....a very smart person here in the office pointed out that if we had applied the same cash to last months NQ trades we would have made over $3M......
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