alen said:
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Its also all the other questions you asked on the options thread.
The real question you should be asking is:- How much money can i lose with a £1,000 account? I'll tell you >>>>You can lose £10,000 if yur not careful and smart.
Bull
bulldozer said:===============================================================
Its also all the other questions you asked on the options thread.
The real question you should be asking is:- How much money can i lose with a £1,000 account? I'll tell you >>>>You can lose £10,000 if yur not careful and smart.
Bull
i am not calling this a get rich quick scheme. i will probably loose money in the first few weeks and months. i konw this because i have been paper trading options for a while now, and i started off losing $70 net loss at the end of my first week; by the end of my second week, though, i had a net gain of $316.
the point im trying to make is this: i am no professional. i know i will probably suffer losses in the beginning. but unless i short (write) options, which im not gonna do, i wont loose $10000.
Rhody Trader
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I'll admit, Alen's question screams "inexperienced, know-nothing, newbie". Honestly, though, how are we helping him by telling him he knows nothing? For that matter, how do we know that to be the case? Let's try to be constructive rather than dismissive.
Rhody Trader
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It's quite simple. The worst case scenario is losing all your money. If all you do is trade options from the long side (owning options that is, not just trading the long side of the underlying), you can lose no more than the cost of the options you buy.
That all said, options trading is not easy. The timing element is hugely important. You can get everything right in terms of direction, but if you don't get the "when" part right, you end up losing on the trade. That is probably the biggest reason why a lot of people avoid options. There's no doubt that the application of leverage can dramatically increase returns, but you have to be pretty good about judging the timing of the moves you are looking to happen, something not of major concern for the spot forex, stock, or futures trader.
That all said, options trading is not easy. The timing element is hugely important. You can get everything right in terms of direction, but if you don't get the "when" part right, you end up losing on the trade. That is probably the biggest reason why a lot of people avoid options. There's no doubt that the application of leverage can dramatically increase returns, but you have to be pretty good about judging the timing of the moves you are looking to happen, something not of major concern for the spot forex, stock, or futures trader.
Rhody Trader said:
What you said in the first paragraph about trading options from the long side is gonna be true in my case; im not gonna short (write) options, nor am i gonna exercise them.
As for the timing, im not really gonna "day trade", so the split second timing factor is at a minimum. im gonna look for weekly trends in the underlying stock. by the way, option prices don't fluctuate as often as stock prices do they?
Why have you decided to trade options?
Is it because you have been told you can make big money here?
Or is it because you think there is an inherent advantage in options trading that you can exploit?
What prior experience do you have in financial markets?
Have you tried your hands with stocks? If not, why?
What makes you think derivatives are right for you?
Do you have a trading plan?
If you have 10 consecutive losses, what effect will it have on your trading and your mind?
If 50% of your capital gets wiped out in a month, what effect will it have on your trading and your mind?
Do you think these events are likely to happen or unlikely?
What kind of faith do you have in your trading strategy? Why? How do you know it will work?
And finally, why are you talking about trading with money when you are clearly not at all familiar with your chosen trading vehicle? (obvious from your very basic questions all over T2W)
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You do not have answer these here, but if you think about these you should benefit. Again these are not intended to show you in poor light. Just to prompt you to think.
Is it because you have been told you can make big money here?
Or is it because you think there is an inherent advantage in options trading that you can exploit?
What prior experience do you have in financial markets?
Have you tried your hands with stocks? If not, why?
What makes you think derivatives are right for you?
Do you have a trading plan?
If you have 10 consecutive losses, what effect will it have on your trading and your mind?
If 50% of your capital gets wiped out in a month, what effect will it have on your trading and your mind?
Do you think these events are likely to happen or unlikely?
What kind of faith do you have in your trading strategy? Why? How do you know it will work?
And finally, why are you talking about trading with money when you are clearly not at all familiar with your chosen trading vehicle? (obvious from your very basic questions all over T2W)
=====
You do not have answer these here, but if you think about these you should benefit. Again these are not intended to show you in poor light. Just to prompt you to think.
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=alen said:
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Have you read what happened to a guy called> Dev17? I think you should read his true story in options trading [and he was not a novice either.]
To be safe in trading options you need to learn about the following >> GREEKS, Margin, american/european style, intrinsic value, time value, and when to pull out of a losing trade and how to convert a losing trade, how to hedge, how to reduce margin costs.I'm saying all this cause we dont want to see you get hurt in options! Most important things to learn in options is dissapline, money managment, and not to let the greed aspect of emotions control/dictate your trades.
Dev 17 >
http://www.elitetrader.com/vb/showthread.php?threadid=51251&perpage=6&pagenumber=1
Bull
Learn b4 u earn!
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bulldozer said:=
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Have you read what happened to a guy called> Dev17? I think you should read his true story in options trading [and he was not a novice either.]
I'm saying all this cause we dont want to see you get hurt in options! Most important things to learn in options is dissapline, money managment, and not to let the greed aspect of emotions control/dictate your trades.
Bull
Learn b4 u earn!
as far as margin goes, i wont be writing options, so that doesnt have a big impact; hedging and GREEKS, when to pull out of a losing trade and how to convert a losing trade, i need to learn; the rest i know enough of.
Rhody Trader
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bulldozer said:
While I would agree that a knowledge of these things is helpful, and in some cases necessary, I would contest a couple of points as they pertain to Alen's intention of taking strictly directional option positions (no spreads, no naked selling, etc.). Specifically, margin and margin costs are non-factors, and hedging out of the equation as well.
As to the Greeks, I don't see a need to get overly wrapped up in them. Are they good to know and understand? Certainly. Does a "position" trader have to be concerned with Rho and Vega? Not really.
Rhody Trader
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bulldozer said:He needs to know the DELTA's thats for sure! even if your buying calls or puts.
Why?
I have my own view on this, but I'd like to hear yours.
=======================================================Rhody Trader said:
If he buy's a call or put wiv low delta's even if he's got the CORRECT direction the positions may NOT move at all. an OTM does NOT move as good as an ATM or a ITM position. Cheap positions wiv low delta's are attractive to buy but they WILL LOSE you money in long run! :idea:
Whats yur view?
Bull
Rhody Trader
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bulldozer said:
Right there you have expressed exactly why I don't think a "directional" trader (one looking to profit from a trend in the underlying) needs to think in terms of delta. If one understands the ideas of ATM/OTM/ITM (and I certainly hope every option trader does!), then throwing delta in to the mix just makes things more complex than need be. After all, delta is simply an approximation of the odds of the option expiring in the money. This is handy for hedging but that's about it.
Your point about OTMs is a good one. They seem very attractive for the risk/reward, but you have to get the timing and the price moves just right for them to work out. I personally stick to ATMs because they have a better risk/reward than ITMs and don't eat up as much of my capital. Sometimes you can find a "cheap" ITM, though. In that case you're talking about Implied Volatility, not Delta.
To my mind, the two big concepts for directional traders are Implied Volatility and Time Value. The latter is pretty obvious in it's implication. I have my ways of minimizing the impact of time, though. Volatility, on the other hand, cannot be avoided. As you noted about low delta options, high implied options can fail to gain if the underlying moves but implieds fall.
Saying that, though, one can simply think in terms of premium over intrinic value to see whether an option is too pricey rather than trying to determine implied volatility. If a trader has a system which provides a good idea of likely price move and move duration, then things can be kept quite simple.
