Beginner options trader questions

[Usernarne]

Hello,
I am a beginner option trader, I've traded them few times only in the past. I've read the basics from the well known sites and a book a while ago. Here are some group of questions I have, appreciate any fast answers:
Question 1: what is the best way to scalp or even daytrade options? For example if I buy some OTM calls and need to get out based on the underlying chart pattern after just few points move (very small SL in other words), the loss is unreal, like 50% (due to the spread I think) if I decide to use market orders (limit orders won't be fast enough for my strategy). Are there any good scalping US brokers you recommend?
Question 2: what is the best strategy for profiting (biggest ROI) of a high volatility swing move? I have read about some strategies but to me just buying long OTM puts, about 3 months expiration seems good enough. I am not interested about the probability just if a huge move happens in these 3 months how can I make the biggest profit.
Question 3: when is the best time to close the position if it's in profit? If for example after 2 weeks is in the money should I close it or stay in if I believe more room to drop? Should I close it better right after a high volatility move in my favor even if not in the money yet?
Thanks!

 

[options-george]

Hello,
I am a beginner option trader, I've traded them few times only in the past. I've read the basics from the well known sites and a book a while ago. Here are some group of questions I have, appreciate any fast answers:
Question 1: what is the best way to scalp or even daytrade options? For example if I buy some OTM calls and need to get out based on the underlying chart pattern after just few points move (very small SL in other words), the loss is unreal, like 50% (due to the spread I think) if I decide to use market orders (limit orders won't be fast enough for my strategy). Are there any good scalping US brokers you recommend?
Question 2: what is the best strategy for profiting (biggest ROI) of a high volatility swing move? I have read about some strategies but to me just buying long OTM puts, about 3 months expiration seems good enough. I am not interested about the probability just if a huge move happens in these 3 months how can I make the biggest profit.
Question 3: when is the best time to close the position if it's in profit? If for example after 2 weeks is in the money should I close it or stay in if I believe more room to drop? Should I close it better right after a high volatility move in my favor even if not in the money yet?
Thanks!

Q1: Don't scalp options - only option market-makers can make money doing this (I spent 1/2 year working next to one for 10 hours a day)
Q2: for biggest ROI you want OTM options yes. Most of the time they will expire worthless, but you may get some huge winners. This makes the strategy difficult to execute from a emotional/psychological perspective. You need to study and understand the option greeks (delta, gamma, vega and theta) to understand how an option will change in value depending on the move in the underlying, time decay and changes in volatility. Then you can work out which option would give you the biggest ROI in each anticipated circumstance. This will take a while to study/understand.
Q3: The greeks will also give you the answer for this. (so same answer as for Q2). You need to weigh the likelihood of further movement in the underlying, possibility of changes in anticipated/implied/future volatility, and the daily time decay.

I will warn you that trading/understanding options is not easy - but good luck!

 

[Usernarne]

Thanks opions-george, I tried two read more about these, but one main question that I still couldn't find an answer yet is this: what is the best options strategy if I predict a sharp move in a stock with a small stop? For example the stock is at 60 now and I predict might go to 58, where I want to buy it, but with a stop of 57 and I think in a short time (2 weeks) the stock will go to 100? At 57 or 100 I want to close all positions. Just long OTM calls will be bad because the spread and lower stock price of the stop (even if small) will eat quite a chunk of the premium. Long straddle and strangles are for big moves in either directions which I don't want. I want big move in one direction and as much as possible protection in case of a very small move in the opposite direction.

 

[options-george]

Thanks opions-george, I tried two read more about these, but one main question that I still couldn't find an answer yet is this: what is the best options strategy if I predict a sharp move in a stock with a small stop? For example the stock is at 60 now and I predict might go to 58, where I want to buy it, but with a stop of 57 and I think in a short time (2 weeks) the stock will go to 100? At 57 or 100 I want to close all positions. Just long OTM calls will be bad because the spread and lower stock price of the stop (even if small) will eat quite a chunk of the premium. Long straddle and strangles are for big moves in either directions which I don't want. I want big move in one direction and as much as possible protection in case of a very small move in the opposite direction.

hello again.

Actually for what you want to do, buying a call is the way to go. Your loss is limited to the premium that you pay but it gives you a lot of upside potential. Basically you are taking a (very) long shot bet (by anticipating a move from 60 to 100 in a few weeks)- so in most cases your call option will expire worthless but every now and then you will get a huge win from it.

If I was in your position I would go for something like the 65 call which should be very cheap if the stock is trading around 60.

Your "protection" is that the premium you pay is very small compared to the potential win. And it doesn't really matter if the stock retraces to $58 or $57.

I hope that makes sense

 

[krishnoparik]

Beginner options trader

I talk about trading. Forex is a complicated business. But if it is good. If you can not be our loss. We have hyena Profit loss. But the loss Forex trading is very easy to gain.