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14 tweets,
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As simply as this.
Using options over Futures doesn't allow you any additional edge in your directional Trade.
The Market doesn't pay for choice of traded instrument when the trader idea is Directional move of underlying.
(1/n)
Using options over Futures doesn't allow you any additional edge in your directional Trade.
The Market doesn't pay for choice of traded instrument when the trader idea is Directional move of underlying.
(1/n)
The only difference comes from government mandated costs for the different instruments.
(2/n)
(2/n)
Unless you are trading extrinsic Value, which in essence is a trade now not on direction but on volatility, there is no difference between using an option or future.
(3/n)
(3/n)
When the delta of an option falls slightly, the rise of the underlying now also results in a smaller rise in price of option aka delta risk.
(4/n)
(4/n)
The long option loses Value with time aka time risk
(5/n)
(5/n)
The long option also loses Value with lack of demand for it aka volatility risk
(6/n)
(6/n)
So what started out as a directional Trade on the underlying now has become a Trade involving several other risks.
(7/n)
(7/n)
The other risks can simply be avoided by using simply Futures.
(8/n)
(8/n)
How to avoid risk of ruin that is being described which creates fear in the minds of traders?
Simply, position size and stop losses.
It can't get simpler than that.
(9/n)
Simply, position size and stop losses.
It can't get simpler than that.
(9/n)
This thread is not to say that there is no reason to Trade options long or short.
If you have a view on volatility then there surely is.
Just not if you only want to Trade direction.
(10/n)
If you have a view on volatility then there surely is.
Just not if you only want to Trade direction.
(10/n)
There is an entire book we run that Trade options where a view on volatility and direction are combined. Here understanding and separating the effects of the various option risks aka Greeks is critical.
(11/n)
(11/n)
There is another book where there is no view on volatility but only a view on direction.
In the @MoversQuant model we only Trade direction.
(12/n)
In the @MoversQuant model we only Trade direction.
(12/n)
For a single Trader it is not easy to switch between the different styles of trading.
Personally, that is one reason why I prefer to run @MoverQuant as an automated algo based system, while the options trades are discretionary.
(13/n)
Personally, that is one reason why I prefer to run @MoverQuant as an automated algo based system, while the options trades are discretionary.
(13/n)
To sum up, of you are simply trading a Directional view, don't clutter yourself with various #OptionsTrading strategies.
If you are willing to learn more about volatility, then sure yes, delve into #OptionsTrading with an open mindset to learn a whole different world.
(14/14)
If you are willing to learn more about volatility, then sure yes, delve into #OptionsTrading with an open mindset to learn a whole different world.
(14/14)
