option trading ?

[alen]

Roughly how much money can i expect to make weekly swing trading options? PS: starting with only $1000.

 

[Rhody Trader]

That's an awfully small amount to start off with. Transaction costs are going to take a bite out of your profits, and your risk profile could be scary.

By swing trading, what exactly do you mean? A couple of trades a week?

And what are you thinking of trading options on?

 

[alen]

first, im gonna invest a small amount in relatively safe options, such as the ones for oil stocks; by swing trading, i mean a few transactions a week; commission is $7 + 1.25 per contract.

 

[alen]

PS: i plan to avoid exercising my options; instead, i will focus on closing my position; i also plan to avoid shorting any options, because as u said, $1000 isnt much.

 

[RUDEBOY]

Rhody is quite correct. Alen, i don't know how experienced you are? But you need to choose your markets carefully to see how they move pts wise through different timeframes. Then you can try to implement a suitable money management system for your K. You also have to consider your broker and and charting package (if you choose that way)? Good trading!

 

[Rhody Trader]

first, im gonna invest a small amount in relatively safe options, such as the ones for oil stocks; by swing trading, i mean a few transactions a week; commission is $7 + 1.25 per contract.

I have to ask how much knowledge of and/or experience with options you have. The way you talk about them suggests a significant lack of understanding. For example, not too many people I know who have traded options would ever call them "safe".

I'm not saying this as a slight. It's just that options trading can be quite tricky.

Are you experienced in trading stocks?

 

[alen]

i am 100% aware that option trading is risky ( i have been paper trading them for some time now). when i said safe options, i was reffering to the ones whose underlying stock has had consistent growth during the past 4-6 months. i meant not daytrading them in the beginning, instead purchasing options with 60-90 days left til expiration and going for the profits in the long run (4-6 weeks) for each option.

 

[Rhody Trader]

If you're holding periods are 4-6 weeks (unless I'm misinterpretting your statement), then you wouldn't be swing trading, right? Swing trading implies holding periods of less than a week.

It sounds like you're position trading using options rather than stocks. That's fine, and can be quite profitable. I've done well with that kind of approach myself. You could run your initial stake up considerably if you get a couple of good winners. The thing you have to focus on, though, is your risk. With only $1000 to start, your position sizes are going to be a bit larger in relation to your account than you would have with a larger base, so you can find yourself deep in the hole pretty quick if things go sour. Make sure that no matter what you can stay in the game. Can't make those big gains if you're on the sidelines, after all. 🙂

 

[alen]

If you're holding periods are 4-6 weeks (unless I'm misinterpretting your statement), then you wouldn't be swing trading, right? Swing trading implies holding periods of less than a week. QUOTE]

im only gonna position trade for the first few months, so my investment capital will go up; then im gonna swing trade.

 

[Anonymous]

Don't stock options function in the similar way as futures options in that they have something known as:

1. The intrinsic value
2. The double edged sword: The time value

?

 

[alen]

Don't stock options function in the similar way as futures options in that they have something known as:

1. The intrinsic value
2. The double edged sword: The time value

?

we all know that, dawg; wat does that have to do with anything?

 

[Anonymous]

Options include 2 types: call and put. One can buy, one can sell.

The calls and puts in turn come with various levels. Simply, in-the-money, at-the-money, out-the-money.

Choosing which one to trade can be quite complicated.

In a horse race of 12 horses for example, how likely is it to pick the winner at the right odds?

 

[Rhody Trader]

Don't stock options function in the similar way as futures options in that they have something known as:

1. The intrinsic value
2. The double edged sword: The time value

?

Not all options have intrinsic value. Only in-the-money ones. Intrinsic value is the difference between the current market price and the strike price, for example if a call has a strike of 100 and the market is at 110, the intrinsic value is 10.

I don't know if I'd call time value a double-edged sword. It's pretty much one edged depending on whether you're long or short. If you're long, it's against you. If short, it works for you.

The double-edged comment is usually used in relation to the leverage options provide.

 

[Anonymous]

If you long an option, time value is a disadvantage. If you short an option, time value is an advantage, but if the underlying contract goes adversely against you?

An option seller may trade like a "bookie", eg. selling an out-the-money call and an out-the-money-put. But if the underlying goes near or at-the-money or into, it can be very tedious and time-consuming to monitor and adjust the positions.

 

[Rhody Trader]

An option seller may trade like a "bookie", eg. selling an out-the-money call and an out-the-money-put. But if the underlying goes near or at-the-money or into, it can be very tedious and time-consuming to monitor and adjust the positions.

That's generally called delta hedging. It's not done too much by the average trader because of the transaction costs involved but rather by the big market makers.

 

[Anonymous]

Ahhh, no wonder I have such a big headache. Please pardon my ignorance.

 

[Windlesham1]

there are many ways to hedge delta and gamma,but you need to trade upwards of 10 contracts. Some people use futures to hedge-which I do occasionally,when I feel confident on direction. Otherwise,trading options is about selling premium-some traders call them lottery tickets,as at least 70% expire worthless. buying calls is pretty much a waste of time unless you have a big move,as the volatlity works against you. I love options,and about half the time they love me,and pay the mortgage.

 

[boxster332]

If you really want to make money consistently in options, either buying or selling, you NEED to understand the role volatility plays both implied and historical. Otherwise, you WILL end up losing.

BTW, Interactive brokers is great for options trading. $1 a contract on US stocks. 1.70GBP a contract in UK.

 

[Robertral]

If you are simply buying options as directional trades (wrt the underlyign movement) then I assume you will be looking at OTM stuff?
Are you going to employ stratagies? Is this account to make money or to prove to potential employers that you are interested in the derivatives market?