Hi - After years of experimenting with different instruments for short-term trades, I finally settled on the following two choices: 1) SPY stock (an Amex ETF) for daytrading, and 2) QQQQ options (nasdaq-based, which have the Amex ETF QQQQ underlier) for swing trades holding anywhere from overnight up to about 6 months. My reasons for using SPY as an S&P proxy rather than the customary ES eminis are twofold: 1) SPY generally exhibits less volatility than the ES, thus there is less chance of being stopped out by a hair on system trades, and 2) SPY allows me greater ability to customize the size of the trade and thus better control risk. Regarding swing trades, I like QQQQ ("cube") options as I said because: 1) cubes are one of the most heavily traded option contracts in the world, thus affording me good fills and very tight spreads. There is never a lack of liquidity with the QQQQ! 2) Cube options are a lot less expensive than SPX, OEX, or even SPY options and thus tie up less capital. A couple of rules I follow about options: First, I prefer at-the-money strikes with at least two months of life remaining, and I always liquidate anything that's still out-of-the-money no less than 30 days prior to expiration. Second, I never sell options....ever. Shorting would put me right back in the same unlimited risk scenario that I was trying to avoid in the first place. You still have terrific flexibility with long options...you can buy calls to bet on an uptrend and buy puts to bet on a downtrend, just like going long or short stocks or futures. Finally, I don't utilize complicated strategies such as spreads, delta hedging, etc. My philosophy is to keep it simple, employing options as a lower risk way than stocks or futures for making short-term directional bets on the broad market. Good luck and good trading! - Joe.
