NexusFi: Find Your Edge


Home Menu

 





Beginner's questions on options trading


Discussion in Options

Updated
      Top Posters
    1. looks_one Yuri57 with 5 posts (1 thanks)
    2. looks_two suko with 5 posts (10 thanks)
    3. looks_3 ron99 with 3 posts (0 thanks)
    4. looks_4 Big Mike with 2 posts (1 thanks)
      Best Posters
    1. looks_one suko with 2 thanks per post
    2. looks_two mattz with 2 thanks per post
    3. looks_3 tradergino with 2 thanks per post
    4. looks_4 wintergasp with 1 thanks per post
    1. trending_up 6,574 views
    2. thumb_up 23 thanks given
    3. group 8 followers
    1. forum 24 posts
    2. attach_file 1 attachments




 
Search this Thread

Beginner's questions on options trading

  #21 (permalink)
 
suko's Avatar
 suko 
Kyoto, Japan
Market Wizard
 
Experience: Intermediate
Platform: TW TOS LiveVol
Broker: TD, TW, IB, Saxo
Trading: VXX, VIX, SPY
Posts: 1,326 since Oct 2013
Thanks Given: 844
Thanks Received: 1,416


HoopyTrading View Post
Options scare the heck out of me. Futures seem much more straight-forward.

We need to point out again that as a beginner option trader you will not be permissioned for "undefined risk" products, so this talk of unlimited downside is for more advanced traders, who have Tier 3 permission to sell naked options. As a beginner you will only get Tier 2.

So, there are "defined risk" and "undefinied risk" strategies.

One good example of "defined risk" that beginners usually trade is an iron condor. It's a combination of two directional defined risk spreads, long and short. Underlying goes up a certain amount or stays the same, you make money, if it goes down a certain amount or stays the same you make money. Beautiful.

The amount of risk is set when you open the trade. It's an absolute limit, (unlike a stop loss with other types of trading).

It's the epitome of the goodness of option trading. Nothing scary about it, except the name.


Follow me on Twitter Visit my NexusFi Trade Journal Reply With Quote
Thanked by:

Can you help answer these questions
from other members on NexusFi?
The space time continuum and the dynamics of a financial …
Emini and Emicro Index
Build trailing stop for micro index(s)
Psychology and Money Management
ZombieSqueeze
Platforms and Indicators
Online prop firm The Funded Trader (TFT) going under?
Traders Hideout
My NT8 Volume Profile Split by Asian/Euro/Open
NinjaTrader
 
Best Threads (Most Thanked)
in the last 7 days on NexusFi
Get funded firms 2023/2024 - Any recommendations or word …
59 thanks
Funded Trader platforms
37 thanks
NexusFi site changelog and issues/problem reporting
23 thanks
GFIs1 1 DAX trade per day journal
22 thanks
The Program
19 thanks
  #22 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
Site Administrator
Developer
Swing Trader
 
Experience: Advanced
Platform: Custom solution
Broker: IBKR
Trading: Stocks & Futures
Frequency: Every few days
Duration: Weeks
Posts: 50,399 since Jun 2009
Thanks Given: 33,174
Thanks Received: 101,539

@suko what platform is that?

Sent from my phone

We're here to help: just ask the community or contact our Help Desk

Quick Links: Change your Username or Register as a Vendor
Searching for trading reviews? Review this list
Lifetime Elite Membership: Sign-up for only $149 USD
Exclusive money saving offers from our Site Sponsors: Browse Offers
Report problems with the site: Using the NexusFi changelog thread
Follow me on Twitter Visit my NexusFi Trade Journal Reply With Quote
  #23 (permalink)
 
suko's Avatar
 suko 
Kyoto, Japan
Market Wizard
 
Experience: Intermediate
Platform: TW TOS LiveVol
Broker: TD, TW, IB, Saxo
Trading: VXX, VIX, SPY
Posts: 1,326 since Oct 2013
Thanks Given: 844
Thanks Received: 1,416



Big Mike View Post
@suko what platform is that?

Sent from my phone

That's dough. Same dev team that did TOS. Next-gen TOS in a sense.

Follow me on Twitter Visit my NexusFi Trade Journal Reply With Quote
Thanked by:
  #24 (permalink)
wintergasp
London, UK
 
Posts: 29 since Sep 2016
Thanks Given: 1
Thanks Received: 31


Yuri57 View Post
@Suko, thanks for the long reply.

I don't intend trading frequently, nor having 10 positions all the time or sell premium for that matter.

I want to make directional bets on commodities, interest rates, FX rates and volatility. Speaking of which, when I buy volatility who is on the other side of the trade? Seems like a no-brainer to buy volatility when it's low.

Yuri,

I've managed a book of options risk here in London. Our clients were only institutional clients and everyone at the desk had at least a master in mathematics if not a PhD.

Buying volatility is the worst thing you can do. There is a huge asymmetry in the bid/offer spread of options, so that the buyer of the option is always screwed. In other words, buying volatility has a HUGE theta cost - every day you will pay a lot to hold that insurance and over 1 or 2 years you will lose 99.9999% of your deposit.

I would strongly advise you NOT to deal with options, unless you are willing to go through 700 pages of Hull's book on options and derivatives.

When I say options I mean vol > they're the same, even the VIX is essentially the price of the vol spread on options.

Regards

Reply With Quote
Thanked by:
  #25 (permalink)
wintergasp
London, UK
 
Posts: 29 since Sep 2016
Thanks Given: 1
Thanks Received: 31

Edit: the only guys I know who make money on options are actually selling volatility. in order to sell volatility without getting blown up (like 99% of the guys who thing trading vol is easy), you need to :
- have a clear understanding of greeks: gamma, theta, vega, delta, etc.
- have a clear gamma-hedging strategy that you can execute to reduce your gamma losses
- have models that will price the vol of instruments in a better way than Black & Scholes, in order for you to find "under-priced" or "over-priced" vol.

If you have an intellectual interest in this, read Hull's book, it's 150$ and will take you probably a good year before you finish it and understand it.

If you just want to make money..... stay away of all of this.

Reply With Quote
Thanked by:




Last Updated on September 30, 2016


© 2024 NexusFi™, s.a., All Rights Reserved.
Av Ricardo J. Alfaro, Century Tower, Panama City, Panama, Ph: +507 833-9432 (Panama and Intl), +1 888-312-3001 (USA and Canada)
All information is for educational use only and is not investment advice. There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
About Us - Contact Us - Site Rules, Acceptable Use, and Terms and Conditions - Privacy Policy - Downloads - Top
no new posts