Comments on: Reader’s Post: Day Trading Strategy and Results http://mytradersjournal.com/stock-options/2008/04/17/readers-post-day-trading-strategy-and-results/ Investing in Stocks Through Options Fri, 10 Oct 2008 23:03:46 +0000 http://wordpress.org/?v=2.6 By: Options Strategery http://mytradersjournal.com/stock-options/2008/04/17/readers-post-day-trading-strategy-and-results/#comment-3103 Options Strategery Fri, 18 Apr 2008 20:29:44 +0000 http://mytradersjournal.com/stock-options/2008/04/17/readers-post-day-trading-strategy-and-results/#comment-3103 @Kadena: If you close the ratio spread at the same time (i.e. buy the call and put back together), the strategy you are proposing is essentially long vega and short theta. So you are betting that there will be spike in volatility (i.e. a move either way) before time decay eats you alive. That's a good bet if VIX is trading low and there is market volatility, like right now with VIX @ 20 and big market swings. This will not work in the opposite case. If there is a quiet period of consolidation with a high VIX, the time decay will eat you up. On the other hand, you leg out of the spread (i.e. close one when it's in the money) then it's a different strategy. In that case you have to guess the direction and size of moves... Tough either way. And this is why I stick with selling theta. It's just simpler and doesn't require as much thinking (except for the risk management;-)). @Kadena: If you close the ratio spread at the same time (i.e. buy the call and put back together), the strategy you are proposing is essentially long vega and short theta. So you are betting that there will be spike in volatility (i.e. a move either way) before time decay eats you alive. That’s a good bet if VIX is trading low and there is market volatility, like right now with VIX @ 20 and big market swings. This will not work in the opposite case. If there is a quiet period of consolidation with a high VIX, the time decay will eat you up. On the other hand, you leg out of the spread (i.e. close one when it’s in the money) then it’s a different strategy. In that case you have to guess the direction and size of moves… Tough either way.

And this is why I stick with selling theta. It’s just simpler and doesn’t require as much thinking (except for the risk management;-)).

]]> By: Alex Fotopoulos http://mytradersjournal.com/stock-options/2008/04/17/readers-post-day-trading-strategy-and-results/#comment-3096 Alex Fotopoulos Fri, 18 Apr 2008 10:28:29 +0000 http://mytradersjournal.com/stock-options/2008/04/17/readers-post-day-trading-strategy-and-results/#comment-3096 Thanks for allowing me to share it. I'm interested to hear if any other readers have some suggetions for you. My experience is quite limited on the index options side. Thanks for allowing me to share it. I’m interested to hear if any other readers have some suggetions for you. My experience is quite limited on the index options side.

]]> By: Kadena http://mytradersjournal.com/stock-options/2008/04/17/readers-post-day-trading-strategy-and-results/#comment-3089 Kadena Fri, 18 Apr 2008 02:40:17 +0000 http://mytradersjournal.com/stock-options/2008/04/17/readers-post-day-trading-strategy-and-results/#comment-3089 My newest position from Thursday will be reviewed later; but I had an idea about options that may help me to learn exactly how the trading days, and market prices affect them. What if someone bought puts and calls of equal investment (like 2, .50 calls and 1, 1.00 put) in tiny sums each day for the first 2 weeks of the month, or maybe even the whole month. Your goal would be to sell, or close each day pair at the right time. If you are familiar with spreads on options, you must 'know' what you want the market to do entering your verticals, diagonals, etc. I feel like it's tough for me to know all the price movements to expect without some crazy trial like this one mentioned. At 50 to 100 bucks a day, it wouldn't cost much, and losses if any should be limited. I may only be able to trial for one week first, buying mon, tues, wed, thurs, fri, tracking action on both sides (calls, puts) and closing when beneficial if possible. Time factors and other Greeks are what I'd like to learn out of all this. Thanks for any thoughts. Good luck to everyone. Kadena PS Thanks to Alex for sharing some of my investment history with his readers, and being there when I need fellow ear to holler at... (Also, i have 2 broker accounts, so wouldn't run into problems owning on both sides ever, just would have to shuffle money.) My newest position from Thursday will be reviewed later; but I had an idea about options that may help me to learn exactly how the trading days, and market prices affect them. What if someone bought puts and calls of equal investment (like 2, .50 calls and 1, 1.00 put) in tiny sums each day for the first 2 weeks of the month, or maybe even the whole month. Your goal would be to sell, or close each day pair at the right time. If you are familiar with spreads on options, you must ‘know’ what you want the market to do entering your verticals, diagonals, etc. I feel like it’s tough for me to know all the price movements to expect without some crazy trial like this one mentioned. At 50 to 100 bucks a day, it wouldn’t cost much, and losses if any should be limited. I may only be able to trial for one week first, buying mon, tues, wed, thurs, fri, tracking action on both sides (calls, puts) and closing when beneficial if possible. Time factors and other Greeks are what I’d like to learn out of all this. Thanks for any thoughts. Good luck to everyone.

Kadena

PS Thanks to Alex for sharing some of my investment history with his readers, and being there when I need fellow ear to holler at… (Also, i have 2 broker accounts, so wouldn’t run into problems owning on both sides ever, just would have to shuffle money.)

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