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Futures or options to swingtrade an index?
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Futures or options to swingtrade an index?

  #1 (permalink)
Brussels, Belgium
 
Trading Experience: Advanced
Platform: IB
Favorite Futures: ES, SPY, AAPL
 
Posts: 7 since Jan 2015
Thanks: 1 given, 3 received

Futures or options to swingtrade an index?

I'm looking to switch to options in stead of futures to limit the potential downrisk of my swingtrades.

My tradingsstyle is long or short on the open on Monday & exit at the close on Friday.

Can anyone give me some "good advice" on this? What options (in/out the money) work best for my style of trading? Can I achieve similar results with options as with futures? I'm not looking for huge leverage, I want to make money when the market moves in my direction: ES goes up 100 points in a week, I am long 1 contract, I make 5000$. What option trade would be similar?

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  #2 (permalink)
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  #3 (permalink)
Market Wizard
North Carolina
 
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
 
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Check out options on futures. Most futures brokers will not allow you to go short, or they do like Tradestation you will need another account for now (changing later this year), which is needed for spreads but Tastyworks support them. They have expiry ~3 days per week and also quarterly. For bullish position, you can short a put spread or buy a call spread or you could go naked (not advised until you reach an expert level).

The amount the options move is the delta. It will be more difficult to get full value out of options as compared to futures because of the time premium. If you want to get more delta, you will want an option with less time, i.e. 1 day vs 3 days.

As for how the options will compare, I would anticipate to see lower absolute return with lower risk per trade. Risk adjusted return could be higher or lower. This a speculation on my part. I am in process of evaluating but you may not be able to capture fast pricing changes, as well. The good aspect is that you don't have to worry about being stopped out.


As for what to try out, you can look at buying/shorting slightly OTM put and or call spreads. You may get better leverage by buying a farther OTM call. The probability of pay off will be less but the delta may change as much. I haven't tested it. Typically, looking at strikes ATM or slightly OTM will be most important and choosing the expiry with least premium with sufficient time for trade to work out. You could of course structure a trade with with different portions on different strikes to get a blended result.


Right now if you go with a 2800-2830 put spread, your risk would be around $750 risk and reward would be the same, 4 day expiry. You get max profit if we close/hold above 2830. You could do a 2825/2840 call with 7 day expiry, ~$450 profit/$300 risk. 2805/2820 4 day, $350 profit, $400 risk. $2815/$2820 ~125 risk/reward. If short biased, you could sell 2790/2815 call. Risk ~$500, reward $750. You can pretty much find a wide range of pay off potential depending on your bias.

One way to find out is to try it out in a paper account or with small positions.


Last edited by tpredictor; March 25th, 2019 at 08:55 AM.
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