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Best ways of translating intraday futures trading to options (or future options)?


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Best ways of translating intraday futures trading to options (or future options)?

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  #1 (permalink)
anycolour
Denver, Colorado
 
 
Posts: 5 since Jan 2019
Thanks: 2 given, 2 received

What are some of the better ways for an intraday(scalper) futures trader to trade similarly using options (or future options)?

Some parameters of futures trading:
Profit target average between 5 and 30 ticks
Time in trades: less than 30 minutes
Aiming for at least a 1:1 risk/reward. E.g., $200 profit/$200 loss

I'm interested in learning if I could trade options/future options under my futures trading framework. Maybe with options I could potentially extend my time horizon for my trades to have more time to be successful, before being stopped out with futures, while maintaining similar risk.

So, what to do with options?
What strikes? ATM/ITM/OTM/?
What duration? 1 day? 1-5 days? 2 weeks?
Best way to keep fidelity with future instrument (/CL, /ES, /GC, etc.)? Using future options? Using ETFs (USO, SPY, GLD)?
Straight calls/puts? Or other strategy (verticals, iron condors, etc.)?

Thank you!

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  #2 (permalink)
 grayfrog 
Los Angeles, CA
 
Experience: Advanced
 
Posts: 42 since Nov 2019
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As someone who has traded both and done well at times with both and done exceedingly poorly at times with both I can tell you they are two completely separate beasts.

My most sincere advice is to treat them as completely separate entities and trade them as such. Of course there is nuance in there and some generalities apply to both but you would be best served treating them as entirely different products that trade completely separately.

Some things to think about when thinking about futures vs options:
- essentially no bid/ask spread in futures (1 tick) whereas the spread on some options chains can destroy your entire profit

- If you're long a futures contract and the price ticks higher you profit. NOT necessarily so on options. With options you can lose even if you are correct on direction. Learn the greeks

- Either you are long or short a futures contract. Sure there is spreading but in general either you are long or short. Either it goes up or it goes down. Very binary for the most part.

- With options, as you alluded to, you can be long or short (call or put respectively) similar to futures but you have to consider numerous other factors. Expiration date, ATM/ITM/OTM (which relates to the delta you are choosing, intrinsic value), theta burn (again the greeks), etc......all of these have a significant impact on whether you will actually make money whether or not you choose the correct direction of the underlying.

- There are no butterflies, iron condors, vertical spreads, calendar spreads, etc........in futures trading

Obviously this is not even close to an exhaustive list of differences but it highlights some major reasons you need to seem them as utterly different trading instruments.

There are many other differences including one of the major reasons people choose to trade options which is that you can construct options trades that make money whether or not you choose the direction of the underlying correctly and you can essentially be the house as opposed to the degenerate gambler.

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  #3 (permalink)
 jharthun 
Hacienda Heights, CA
 
Experience: Intermediate
Platform: NinjaTrader 8
Broker: NinjaTrader Brokerage
Trading: MES, ES, SPX Options
 
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Posts: 49 since Jul 2009
Thanks: 14 given, 29 received


I suggest only trading weekly options on the SPX and forget everything else. Buy straight ITM calls or puts to keep it simple or turn it into a debit spread if you want to lower your cost. The duration should be less than 1 day for options expiring on the same day of the week. You could try to hold your position for 2 days if the weekly options expire on the following day, but I don't recommend it because of the risk involved when holding the position overnight. If your entry and exit signals are working on a chart of the ES futures contract, then use that for timing your entry and exit on the weekly SPX options. Good luck.

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  #4 (permalink)
mosalem2003
Toronto
 
 
Posts: 94 since Apr 2019
Thanks: 94 given, 21 received


jharthun View Post
I suggest only trading weekly options on the SPX and forget everything else. Buy straight ITM calls or puts to keep it simple or turn it into a debit spread if you want to lower your cost. The duration should be less than 1 day for options expiring on the same day of the week. You could try to hold your position for 2 days if the weekly options expire on the following day, but I don't recommend it because of the risk involved when holding the position overnight. If your entry and exit signals are working on a chart of the ES futures contract, then use that for timing your entry and exit on the weekly SPX options. Good luck.

Why you are suggesting only SPX outrights ?
It seems you are also trading MES and ES options - Can you elaborate about your intraday with options on futures as well to reach to that conclusion of the SPX only ?

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  #5 (permalink)
 jharthun 
Hacienda Heights, CA
 
Experience: Intermediate
Platform: NinjaTrader 8
Broker: NinjaTrader Brokerage
Trading: MES, ES, SPX Options
 
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Posts: 49 since Jul 2009
Thanks: 14 given, 29 received

I day trade the MES and ES futures contracts. I don't trade any options on futures contracts. I prefer to day trade options on the SPX instead. The SPX options are very liquid and qualify for favorable tax treatment as Section 1256 investments.

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  #6 (permalink)
mosalem2003
Toronto
 
 
Posts: 94 since Apr 2019
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You trade the OTM on MES and ES or ATM? It will be good to clarify what is the method for day trade the options on both of these assets?
jharthun View Post
I day trade the MES and ES futures contracts. I don't trade any options on futures contracts. I prefer to day trade options on the SPX instead. The SPX options are very liquid and qualify for favorable tax treatment as Section 1256 investments.

Sent using the futures.io mobile app

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  #7 (permalink)
 jharthun 
Hacienda Heights, CA
 
Experience: Intermediate
Platform: NinjaTrader 8
Broker: NinjaTrader Brokerage
Trading: MES, ES, SPX Options
 
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Posts: 49 since Jul 2009
Thanks: 14 given, 29 received


mosalem2003 View Post
You trade the OTM on MES and ES or ATM? It will be good to clarify what is the method for day trade the options on both of these assets?

Sent using the futures.io mobile app

ITM weekly options on the SPX index. Just calls or puts. That's it. Nothing else.

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  #8 (permalink)
sadago
Melbourne
 
 
Posts: 24 since Sep 2019
Thanks: 65 given, 25 received

Is there a publicly available tool for options to calculate the premium, profit/loss based on target price, strike price for SP500 or NQ?

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