Don't trade stock options breh...
- Thread starter LionofJudah
- Start date
Menelik II
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I strongly advise against Amateur trading of options on anything. Even if you're just buying options, it's quite a steep learning curve. People get lured in by the high leverage, but this is negated by the lower probability of success. E.g. You may make 10x more, but a 90% chance you lose money.
As a day trader you won't have as good access to systems, news, or liquidity. You will be a 'market taker' on all trades both options and any hedges you do - effectively paying spreads and commissions that will eat your profits.
Now selling them on average better but riskier and even more problematic and you could get really wiped out.
Of ALL the professional option traders I know, NO ONE does it with their own money - I have not even heard of it in 13 years experience. If it was this untapped goldmine, all professional traders would have this side hustle.
As a day trader you won't have as good access to systems, news, or liquidity. You will be a 'market taker' on all trades both options and any hedges you do - effectively paying spreads and commissions that will eat your profits.
Now selling them on average better but riskier and even more problematic and you could get really wiped out.
Of ALL the professional option traders I know, NO ONE does it with their own money - I have not even heard of it in 13 years experience. If it was this untapped goldmine, all professional traders would have this side hustle.
I only buy LEAPS because if you're not a Wall St insider, you're basically gambling on short term contracts.
Long-Term Equity Anticipation Securities - LEAPS
For a beginner, I would recommend a covered call.
Covered Call
Menelik II
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tbh I wouldn't advise these either because they're much higher premium, and reduce the leverage. I wouldn't advise anyone to do any options or option strategies.
DrunkenNovice
Superstar
Not available in my library, but that amazon link is saying $5 for a hardcover copy?
tbh I wouldn't advise these either because they're much higher premium, and reduce the leverage. I wouldn't advise anyone to do any options or option strategies.
You feel day trading is dead for outsiders due to system limitations?
Yeah I bought a used copy even though the library had it, just so I could always reference it. I paid $0.01 plus $3.99 shipping.
tbh I wouldn't advise these either because they're much higher premium, and reduce the leverage. I wouldn't advise anyone to do any options or option strategies.
If I'm buying LEAPS, I'm looking for volatile stocks that I think can make a move in the short term, but I'm comfortable holding long term. I bought 2018 LEAPS on shale stocks when WTI was hovering around $30 and it has paid off nicely thus far.
Menelik II
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I wouldn't use the word 'dead' just at a significant disadvantage. It really depends on the strategy used and time horizon but the main issues are the spreads and commissions. The game is basically rigged against you. The brokers are the bookies, and you are the gamblers. The bookies or the house always win in the long run.
Menelik II
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Ok, but these volatile stocks you have to pay more premium for though , it's all priced in. You would have been better off with shorter term options. Longer term options don't have 'convexity' as such, this would have been the same as buying wti index/spreadbet. It's hard to explain on the board tbh.
How often do you trade or hedge?
DrunkenNovice
Superstar
Ive been reading a lot about the market (theory/anlalysis) recently before i decide to make that jump (or if im going to even do it) and Ive come across a few people who say the same thing that the high frequency trading computer algorithms pretty much squeezed out the human traders.
My expectations are EXTREMELY modest. Like im not looking for quit your day job type money.
Funny you bring up the gambling analogy because thats what im looking to replace
Menelik II
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The HFT make a bad situation worse, but that really only affects short term guys.
All the market theory and analysis is all bs at the end of the day, it's essentially all random. Unless you have special info No one knows if it's going up or down. (Option theory you have to know if you want to trade them)
The idea of private traders making loads is allowed to continue because there's quite a big industry in it, the news, trading recommendations, brokerage fees etc etc. Then the ones who do win, tell everyone how much money they've made, and the losers don't say anything. So outsiders think it's free money for everyone.
Always remember there is no free lunch in the markets, if it looks too good to be true it's wrong. Only the middlemen and HFT algos make money.
I should have clarified... I look for stocks that have taken deep dives that aren't headed for bankruptcy and eventually level off, trading in the same range for extended periods of time, but could get back to where they were before based on fundamentals/news, so the the premium isn't as steep when I buy, relatively to periods of high volatility.
I did that with EP Energy (EPE) when it was trading around $2-3 for awhile after an IPO of $20 a few years earlier. I bought 20 $5 2018 calls for $0.75 per contract and it's worth somewhere around $2.50 now. The stock has leveled off again around $6 and was up higher before, so I could have cashed out, but I'm holding to see if the OPEC cuts have any further, real effect.
I've done that with a lot of stocks... a lot of success. Some failure and neutral results. My best was buying Talisman Energy options on rumors of Carl Icahn wanting to force a sale and the sale happened shortly thereafter.
I don't trade much anymore. I think the market is topped out and I would only go short, but I thought it was topped when the S&P was at 2120, so what do I know?
Menelik II
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Basically to to beat the market over a period of time, whatever the strategy you use, implies that you either have information OR used that information better than everyone else trading it across the globe AND all the computers they use. Now what is the odds of that being true? The agents you are against have a lot more experience and info than you do. There is nothing you have seen that they haven't. E.g. You buying in times of high volatility, rumours, OPEC is already factored into the option price.
The reality is All the times you have won is luck, and when you lost was bad luck. I'm not trying to ruin your party, but that's the reality. You should think of it as a game of chance that you can ride rather than a system you can try to outsmart.
If you enjoy it, carry on but don't do it as a job or hustle. Most importantly don't invest/risk more money than you would be happy to write off or lose , don't gamble with next months rent, don't borrow money and gamble.
DrunkenNovice
Superstar
for your opinions.
Menelik II
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Traded fx options at various banks for over a decade. Haven't got any experience in stocks or bonds, although I have an understanding of them.