# Options - yes or no?



## blueskytrader (19 February 2006)

had a read of the options threads on this forum - 

not a well used sub section  - posts quickly go back to 2004 - and the general impression conveyed by folks with experience - 

options are just too dangerous - stay out - quick way to loose your money - stories of desperate traders being _physically_ removed from the trading floor before they lose another milliion etc - wow ! 

i was going to seek advice - not try to do it on my own - 

but since those with experience are _driven_ to talk of the risk - seems the option is _no_ options - straight out shares ?

ive already read the thread on cfd's


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## tezz (19 February 2006)

If you havan't traded options before you better start learning,....or if you have 200 or 300k trading capital shares would be the best bet.
When I first traded options I did very well, the market went bad and I lost 20k.
The problem I had was after buying an option the stock would be down at the next opening, a 50% loss if I sold, I was convinced the stock would rise or be up next week, I held as the option still had 30 days before expiry, 2 weeks later the stock had fallen more and time decay had set in, now this was showing a 90% loss, I held on to the end hoping now the stock would rise, the market maker took the lot. I should have been more disciplined and exited the trade as soon as it went against me.
A warning about market makers, these are people or firms that don't work for the ASX, there job is to take your money and keep it, when you place a buy or sell they sometimes will change the bid to a lower price or the buy to a higher price even when the stock hasan't moved, alot of newbies fall for this.
Options though are very popular, and last week a heap of trades went onto LHG in about 2 hours, all out of the money calls, the biggest trade was 360k,
maybe someones in the know here, I'll be watching it.


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## son of baglimit (19 February 2006)

if you are referring to put & call options, i havent tried to play them yet. i have had a great deal of success with the boring old 'listed options' (for choice of a better term). if there is considerable confidence in a stock, then it certainly accelerates the gains. (greatest example nms gain of 1000% versus nearly 2000% on nmso from june 04 to march 05 - for same capital outlay)....sorry to brag again.
on this subject, can anyone tell me where i can obtain a listing of these types of options - not put & call, but these listed options...thanks.


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## blueskytrader (19 February 2006)

thanks Tezz and Son of baglimit -for the feedback 

scarry stories indeed - market makers are not to be trusted ! there purpose in life _is_ to take out money  - id agree with you there - 

and i'll have to look up " listed options " - 

not sure of the territory here, but arnt all options listed in a sense - you look up  what options are listed for offer ? being traded ? they are created before hand .


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## wayneL (20 February 2006)

Options yes or no?

If you are prepared to put hours and hours of study in, treat it as an apprenticeship, understand it will take 2-3 years to fully grasp all the concepts/risks etc

YES

If you think you can do a weekend course or read as book or two and then go and make big bucks.

NO


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## wayneL (20 February 2006)

blueskytrader said:
			
		

> options are just too dangerous - stay out - quick way to loose your money - stories of desperate traders being _physically_ removed from the trading floor before they lose another milliion etc - wow !
> 
> but since those with experience are _driven_ to talk of the risk - seems the option is _no_ options - straight out shares ?




As I say, if prepared to put in the work to learn, options can be SAFER than shares. It is the lack of knowledge which is dangerous with options, not the options themselves.

Cheers


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## EddyPoh (21 December 2010)

wayneL said:


> As I say, if prepared to put in the work to learn, options can be SAFER than shares. It is the lack of knowledge which is dangerous with options, not the options themselves.
> 
> Cheers





You are right WayneL. 

In Options, its a two sides playing field. You need to know which side of the fence you want.

One side, which is the creator of the market for the 'other side'. This side is lower risk than the 'other side', which means the returns are lower BUT consistent tho. Usually between 3-9% per month. Less time. 

'Other Side', whose trades the options in the market. Its high risk but high returns. You need to spend heaps of time to learn to read the charts, News etc. 

Not a lot of people knows about the creating of the market. I came across this last year and i've been earning consistently every month. SHould check it out.

www.MoneySuccessWealth.com


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## tothemax6 (21 December 2010)

Probably no. Yeah I'm going to go with no.


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## mazzatelli (23 December 2010)

EddyPoh said:


> You are right WayneL.
> 
> In Options, its a two sides playing field. You need to know which side of the fence you want.
> 
> ...




Just for future readers reference, the quoted post above is bullsh*t to put it mildly


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## howardbandy (24 December 2010)

Greetings --

Like so many subjects, there is not an easy yes or no to this question.

I trade options and recommend them when they will be used in the following situations:

1.  The underlying and the option you plan to trade are very liquid.  I trade options on SPY, QQQQ, IWM, and EEM.  SPY is the most liquid issue in the world and options on SPY are usually the most liquid options in the world.  The others will usually be in the top ten.  I never trade illiquid anything, particularly illiquid options.

2.  You have a directional bias -- the price of the underlying is going to move higher or lower.  Your signals need to be about 60% accurate.

3.  Your time forecast is a few days at most.

Read a lot about options, including the sophisticated trading techniques and "greeks."  You will not use most of these techniques, but you need to understand what other options traders are doing.  Begin with Larry McMillan's books.

Take only debit positions.  With a debit position, your loss is limited to the amount of the debit.  If you have a credit position, your loss is essentially unlimited.  Each options position should be less than 1/2 of one percent of your trading account.  For example, if your account is $100,000, then your options position should cost you $500 or less.  The options I trade are quoted at about $2.00, so each contract for 100 shares costs $200 and I can buy two options contracts.

As a rule of thumb, use options with between 10 and 40 days to expiration, at the money of first strike in the money.  

Have a profit target price in mind for the underlying.  Exit you options position when the underlying reaches that price.  Exit at the close of the market on the third or fourth day if your target has not been reached.

There is more to it than this, but the system outlined here works (provided you have a good directional signal), is safe, and is very profitable.

Thanks for listening,
Howard


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## mazzatelli (24 December 2010)

howardbandy said:


> Take only debit positions.  With a debit position, your loss is limited to the amount of the debit.  If you have a credit position, your loss is essentially unlimited.




Hi Howard,

I'd have to respectfully disagree.

There are credit positions with limited loss, often the synthetic equivalent of debit positions. e.g. Bull put spread = bull call spread, iron butterfly = call/put butterfly

imo understanding the behavior of partials [Greeks], gives a clearer indication of the risks compared to credit/debit criterion.


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## colion (25 December 2010)

howardbandy said:


> As a rule of thumb, use options with between 10 and 40 days to expiration, at the money of first strike in the money.




Arguably a bit too general. For example, the way one looks at time depends in part on whether one is an option buyer or seller.  This limited time horizon would also eliminate, for example, LEAP strategies which some find useful.  From your comment, I suspect that you are a shortish term call buyer which is fine but there are other plays which have different requirements.


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## BradK (27 December 2010)

mazzatelli said:


> Just for future readers reference, the quoted post above is bullsh*t to put it mildly




Smells like a share renter to me


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## wayneL (27 December 2010)

Well it seems I had my two bob's worth a few years ago, but seeing this thread had been exhumed, an addendum:

For straight directional trading 

No

Directional trading with a twist (reference to Greeks/volatility)

Maybe

Non Directional trading

Yes

Kung Fu trading - (attack and parry) {AKA option metamorphosis}

Yes

But better know your stuff.


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## manthink (31 December 2010)

wayneL said:


> Well it seems I had my two bob's worth a few years ago, but seeing this thread had been exhumed, an addendum:
> 
> For straight directional trading
> 
> ...



Any hope for Small Capital traders who might want to test Options with a few thousand dollars - $2,000.00? What options strategy would you suggest for them?


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## nulla nulla (31 December 2010)

Resurfacing after nearly 5 years (February 2006 - December 2010) it would be interesting to hear how the earlier posters have faired in the intervening time, trading options in the run up to the peak of the djia & all ords, then the run down of the GFC to March 2009, then the bounce.


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## cutz (31 December 2010)

manthink said:


> Any hope for Small Capital traders who might want to test Options with a few thousand dollars - $2,000.00? What options strategy would you suggest for them?




Unfortunately with such a small capital base your strategies may be limited, if there is a broker that will allow you to trade you will probably be confined to buying some ATM contracts, or some more OTM contracts.


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