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Trading Options... What I've learned (the hard way)

  • #41
  • Mar 15, 2017 8:33am Mar 15, 2017 8:33am
Im not an FX trader, my trading expertise is actually in options.

I have to disagree with most of the posts in this thread. Some of the suggestions and claims made in this thread are actually not based on reality, and some advice in this thread is actually quite dangerous and has nothing to do with how professional option traders approach options trading.

You guys really need to be careful, options are very deceptive,
Don't focus on making money; focus on protecting what you have. Tudor Jones
  • #42
  • Mar 15, 2017 11:43am Mar 15, 2017 11:43am
Quoting fx4joy
Im not an FX trader, my trading expertise is actually in options. I have to disagree with most of the posts in this thread. Some of the suggestions and claims made in this thread are actually not based on reality, and some advice in this thread is actually quite dangerous and has nothing to do with how professional option traders approach options trading. You guys really need to be careful, options are very deceptive,
Honestly, I haven't read the whole thread in details, but which statements, suggestions & claims are you specifically referring to?
  • #43
  • Mar 15, 2017 11:48pm Mar 15, 2017 11:48pm
Quoting narafa
{quote} Honestly, I haven't read the whole thread in details, but which statements, suggestions & claims are you specifically referring to?
Hi narafa,
your post is actually one of the few ones that actually make sense. Some people from this thread would be much better off with following your advice and taking their money to casino, rather than following some of the irresponsible the advice / suggestions from some of the other posters :-)

Here are few of those statements and suggestions that I was referring to:

Quoting famagusta
Unlike futures and stocks, options have dozens of calls and puts for each underlying asset, and each one of those calls and puts have different value..
True


Quoting famagusta
You can buy a call, and just because you bought it expensive, the price of the underlying can reach the price you thought it would reach, and you can be merely breakeven.
True, plus one can be right on direction and actually lose money if one does not understand the behaviour of Greeks.


Quoting famagusta
If you don't have a system/method/crystal ball that measures the market right, DON'T BOTHER TRADING OPTIONS. Your system must have proven it self to pick up the trend, and give you the chance to get out with minimal or no loss in case of a bad trade.
Not true. Option traders do not need trend.


Quoting famagusta
Your system must work well in measuring different kinds of products. Stocks, indexes, forex etc.
Not true.


Quoting famagusta
Don't day-trade options until you are proficient in higher time frames
If one wants to day trade, then s/he should use hard Delta instruments and not options unless one is targeting Gamma plays.
Quoting famagusta
Don't be an option SELLER until you are successful in plain vanilla and have the stomach and discipline for it. If you can't control your inexperienced trading ego, you will suffer losses even beyond your original plans.
Nothing wrong with selling options as long theyre hedged and not naked. Most of the best option traders sell options all the time, but they always hedge their risks.


Quoting famagusta
Never enter a trade based on assumptions. Wait until you are confident. Options are an expensive sport!!
Entering trades based on confidence is synonymous with 'hunch-centric betting'. Confidence is a feeling (emotion) and trading based on feelings instead of following rules of a well-tested, robust, positive expectancy method will eventually end up in a disaster. By the way Im not having a go at famagasta, Ive made all the mistakes myself. What Im writing applies to me and other traders as well. Im highlighting the hidden risks of discretionary trading. Successful discretionary traders are rule based and follow rules and routines, trading must be approached as a business.


Quoting famagusta
In options, you DON'T need margin, and you don't get margin calls. What you need is only the amount that represents the price of the option you buy (plus commissions)
Once again this can be misleading and dangerous advice. Options on certain underlyings use SPAN margin, and SPAN margin is different to what retail traders are used to and SPAN margin might actually increase if the position goes against you. Don't believe me? Start doing research http://www.investopedia.com/terms/s/spanmargin.asp


Quoting famagusta
From what I understand, you have less than 2k for options trading. That's fine by my book. If you didn't find any broker accepting less than 2k accounts, LOOK AGAIN and search more. I will NOT reference any broker. If you rally want to start, you will find quite a few.
How much a newbie can make? From zero, to 100% and even more. This question, only you can answer, with your discipline, earned experience and having a successful way of measuring the markets. DO YOU HAVE ONE?
Again, this is irresponsible to suggest someone to trade options with insufficent capital. Secondly, any broker letting people trade options with less than 2K won't be a good broker. And lastly, the comments about performance have nothing to do with how professionals measure performance.


Quoting famagusta
Do NOT get into much detail with deltas, thetas, IV and all of that. They ARE important but not for now.
Again, misleading and dangerous advice.


Quoting Subdude
Do not bother trading options if all you have to play with is $2K - try your luck at online poker instead.
Finally, a spot on suggestion.


Quoting Subdude
In terms of the absolute lowest risk strategy, you could start out by picking a stock you are confident in (long term), going long or short on it, and writing an out of money option in the opposite direction. This way, you pocket the option's premium, while limiting your risk to being wrong on the stock's direction ONLY. The obvious advantage here is that stocks don't expire, unlike options, so even if you're wrong in the short term (by option's expiration), you have decent chances of still making money on the trade (and the written option's premium...
Sounds nice, however if the sold OTM options will become ITM, it means that at the same time you'll be suffering from losses in the underlying which can be a huge deal.

Say for example that youre long stock and you sell an option against it as you suggests. If the stock tanks, youll collect all the premium which might be actually very relatively small in comparison to the loss suffered from the underlying going against you. This strategy is very deceptive when it comes to risk as it is synthetically equivalent to selling naked options. Look at the risk graph:

https://www.thestreet.com/options-pr...es/fig1_43.png

Unlike professional traders, most retail traders lack the awareness necessary to dissect option spreads and view and assess risk through analysing its synthetic equivalents. Im not saying that one has to know all this stuff, but if one doesnt, then one day s/he will find out the hard way. There is nothing wrong with taking risk, the problem is when one is not aware that s/he is actually taking on risk. That seems to be the case with some retail option traders trading this strategy.


More details about the hidden risks of this strategy:
https://www.thestreet.com/story/1131...you-think.html
https://www.thestreet.com/story/1131...you-think.html


Quoting famagusta
Good post subdude, Option writing is a very good way to make money. After all, at the end of the day the dealer has always more money than the players!! Judging from your experience (as you mention in your post), you propose a "writing" (selling) option strategy. I agree that writing options is a much safer strategy.
Options selling (writing) is a good strategy only if it is properly hedged, otherwise it will eventually blow up in your face.


Quoting famagusta
{quote} Therefore, a trader must learn to be VERY STRICT in his/her decisions and CUT immediately a bad position. This is why I don't reccomend option writing for a novice. It's that false sence of security that the premium gives, and the nature of man who is many times unwilling to admit that a position is going the other way.
Discipline to cut a loss wont help you if the underlying gaps against you. One needs to be hedged and have limited risk.


Quoting presino
hello famagusta i have traded before without proper knowledge of binary option and lost everything i then marked binary option like no go area and refused to believe that people can earn money from binary option, i thought is a game of luck. I really want to know how to trade binary option, i have been reading education materials online about how to trade binary but it is too hard for me to understand. i which God could send someone like you to coach me on binary option. i will be very glad if we can communicate with whatsap or bbm
Another vulnerable person being sucked in


Quoting Phylo
Free Options Education - http://www.optionseducation.org/cont...m_overview.htm {image} {image}
Very good resource to send people going in the right direction
Don't focus on making money; focus on protecting what you have. Tudor Jones
  • #44
  • Mar 16, 2017 12:02am Mar 16, 2017 12:02am
Quoting The Fool
Check out dough.com and tastytrade.com for tons of content for the active options trader.
Very good links as well
Don't focus on making money; focus on protecting what you have. Tudor Jones
  • #45
  • Mar 16, 2017 2:16am Mar 16, 2017 2:16am
fx4joy, ok, now I understand, got you
  • #46
  • Last Post: Jan 31, 2019 10:42pm Jan 31, 2019 10:42pm
I would like to share my daytrading strategy by using indicator BB SQUEEZE
the indicators:
moving average exponential 8, 21, 34, 55 and 89 (fibonnacci sequence)
BB squeeze default only change the color. (see Attch)
macd fast ma 8, slow ma 21, signal ma 89

I am using multiple time frame 5M, 15m and H1. (see Attch)

You also can use 2TF only for trading 5 with 15 or 15 with H1.

RULES for BUY.

moving average 8 > 21 > 34 > 55 > 89.

BB squeeze is a RED DOT on the zero line and the histogram is GREEN color or IF there is no RED DOT but GREEN DOT you can entry BUY if there the histogram cross from BELOW zero to ABOVE zero (white histogram become Green histogram cross from below).

MACD histogram MUST above ZERO line

For SELL just the opposite

Goodluck
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