What's your options trading strategy?

[Shawty_]

I love options. They are so flexible and can be used with a plethora of various strategies. They can be used to hedge risk. They can lead to loss of your entire account What strategy do you use to trade options? Here are some examples:

1. You make a price prediction on the underlying and use an option spread to capture the move.
2. You use statistical analysis on either the underlying or the option itself to forecast the upcoming move.
3. You use financial modelling to identify arbitrage opportunities in mispriced options or underlyings.
4. You use pair trading to capture convergence/divergence.

What's your pleasure? Please kindly go into your technique for the benefit of learners. We all started somewhere.

 

[ChrisDouthit]

In my opinion, doing research, calculate an opinion, and then selling premium is the best way to go because it delivers consistent profits can be replicated over and over again. Someone else may not want to put that much effort in their trades, so won’t work for them.

So the best strategy is whatever works for you.

However, I would say, the go to strategy for beginners of buying out of the money call options is probably the worst strategy.

 

[Bubba27]

However, I would say, the go to strategy for beginners of buying out of the money call options is probably the worst strategy.

Why do you say that? Is it because if the price goes the wrong direction they have to pony up the money to buy 100 shares of whatever stock they were working with?

I am a beginner and want to try options trading. Buying calls is the first options methods that I read about. What strategy do you think is easier for the beginner? Selling puts?

 

[ChrisDouthit]

Buying out of the money calls is the worst strategy because it has a low probability of success. If you buy a stock, not counting any research, it essentially has a 50-50 chance of being profitable. If the stock goes up you win, if it goes down you lose.

If you're buying out of the money calls, now the stock not only has to go up, but has to go up enough to clear the strike price and to make up what you paid for the call. So now this is way worse than a 50-50 shot.

Traders who buy out of the money calls consistently lose trade after trade and after a while thing option trading doesn't work.

The better strategy is to sell premium, but to do research to make sure you're making the correct move, and then make many small wins at a big over time. These end up crushing average market returns which is why smart money traders use this strategy.

 

[Bubba27]

Thank you for the description.

I was reading a book about options and it has been tough for me to grasp. Even after repetatively reading some points over and over, options are still tough to memorize.

Signing up for a demo account for options trading may teach me faster than reading a book ...

 

[ChrisDouthit]

Thank you for the description.

I was reading a book about options and it has been tough for me to grasp. Even after repetatively reading some points over and over, options are still tough to memorize.

Signing up for a demo account for options trading may teach me faster than reading a book ...

Options are confusing for everyone first, if you want to have a better understanding of how they work sign up for the free course at Option Strategies Insider.

 

[sideways-sid]

I love options. They are so flexible and can be used with a plethora of various strategies. They can be used to hedge risk. They can lead to loss of your entire account What strategy do you use to trade options? Here are some examples:

1. You make a price prediction on the underlying and use an option spread to capture the move.
2. You use statistical analysis on either the underlying or the option itself to forecast the upcoming move.
3. You use financial modelling to identify arbitrage opportunities in mispriced options or underlyings.
4. You use pair trading to capture convergence/divergence.

What's your pleasure? Please kindly go into your technique for the benefit of learners. We all started somewhere.

5. You use statistical analysis to form a view on volatility and use an option strategy to capture the move.

For me 1. and 5. mainly.

 

[ARBinstruktor]

In most cases I use options to sell variance

First I built a cheap or free variance portfolio with some quasi-linear products (eg Index Futures, Volatility Futures, CFDs, Spread Bets, etc.)
As this initial position is comparable to a straddle or strangle (but at reduced costs, usually half volatilty), it will get only value, when there is some movement. No matter which direction.
Instead of waiting for such a move I sell calls and puts across the strike spectrum (like it is done in calculating the VIX as a function of an option portfolio).
If there is no move, I get the premia from the sold options. If there is a move, the option pay out is covered by the gain of my initial position, and again the implied vola/variance I have sold is booked in my P/L.

I am considering some kind of tactical trading. Looking for a liquid underlying (eg S&P 500), defining a fix distance to the 200day average and starting to sell short dated call spreads above the average and buy long dated puts and doing the opposite below the average.

 

[NVP]

Ive been looking at options recently as it is such an interesting field of trading
Selling volatity for me presents the most interesting possibilities so always happy to hear any other thoughts...

 

[Henow1969]

Though I am new in Option trading but I always try to analyze my last trade and then go to next trade. I also prefer to repeat my mistakes I have done in my last trade so it will be easy to make good results in next trade.

 

[AC007]

I win 80% of the time yet I end up losing. If I lose 1 trade then I have to win 6 times to make up. Not a good method. I am now learning by paying a bit of money to bring risk to reward ratio down.

 

[Bobbyrayangel]

IV and price dictate my strategy. As a whole tho I sell premium

 

[Kevinjk]

I leg in and buy insurance

 

[derivativesnyc]

I love options. They are so flexible and can be used with a plethora of various strategies. They can be used to hedge risk. They can lead to loss of your entire account What strategy do you use to trade options? Here are some examples:

1. You make a price prediction on the underlying and use an option spread to capture the move.
2. You use statistical analysis on either the underlying or the option itself to forecast the upcoming move.
3. You use financial modelling to identify arbitrage opportunities in mispriced options or underlyings.
4. You use pair trading to capture convergence/divergence.

What's your pleasure? Please kindly go into your technique for the benefit of learners. We all started somewhere.

Trend follow momentum

 

[LongVision]

I do a combination of directional & non-directional strategies using Algo to capture different phases of the market. Here is my 01-year result on weekly options trading Indian market.

 

[ThaddeusFinch]

1. You make a price prediction on the underlying and use an option spread to capture the move.

It is a good strategy depends on different actors like the trader's skill, risk management, understanding, and specific circumstances.