Dude what we are arguing is that its a very poor way to gain exposure to your trade idea. Just look at the ANZ example.
You have to buy huge positions and gain a fraction of the move. While exposing yourself to outsized cost. Its a dumb way to day trade.
Yeah? So what? thats moves on minimum margin. What are the risk adjusted moves? whats going to stop you getting - 10% -30% for a few days each week and copping your account in half?
Apologies for bringing this up again....
You may be correct and excuse my ignorance....
What do you mean when you say "You have to buy huge positions and gain a fraction of the move. While exposing yourself to outsized cost."
and
"Yeah? So what?
thats moves on minimum margin. What are the risk adjusted moves? whats going to stop you getting - 10% -30% for a few days each week and copping your account in half?"
I'm not trying to prove myself right or wrong I just genuinely want to know what you mean as it's not making sense to me.
Here is how I trade...
I've learned basic TA skills and like to keep them as simple as possible. I'll buy a stock outright for most of my trades to benefit from an upward move but this will usually take up a fair bit of my capital so I may only own 2-3 stocks at any given time and usually not hold them longer than a few weeks (i'm trading with a 60k bank)..
However, if it's a big blue chip stock and I'm really confident of my trade (and it has options) then I'll trade the options just because I need a much smaller move in the stock to make the same return.
For example.... (and I'm going out on a limb here because I'm in this trade now and the pressure of knowing that others know what trade I'm in may cause me to trade erratically) WPL has had a nice break to the upside on good volume and looks like a double bottom both on the weekly and the day... First point of resistance $40 with a medium term target of $48.
On Thursday 23rd of Feb I bought 22 contracts of the WPL April $37.71 calls @ $1.38 (WPL was trading at around $38). This is the equivalent of owning almost $83,000 worth of stock... Now I'm expecting the stock to reach the $40 mark within the next few trading days...
I don't want to tie up $83K in one trade so tying up 3k to make the same amount of profit on the move to $40 as I would with $83k is a lot more appealing as I have the rest of that money tied up in other stocks/trades.
When I look at this trade now (in hindsight) it's not one I'm actually comfortable risking 3k on (even though I planned to exit if the option dropped to 1.5K) as the resistance coming up at $40 is only $2.14 away but by my estimates that's enough to make the value of the option rise by about 50%????
In any case, the profit to be made for a rise to $40 is about the same on 3K as it is with 83K is it not?
I'm not a professional, I'm not saying I'm right and I'm open to criticism. This is what I've gathered and I'm risking profit here maybe to learn the hard way?
9/10 of my trades are long stock trades (not options). I only use the options after a good run and I have some money to lose because I know that as the stock turns in the other direction the option loses value just as fast. I also use options when I'm bearish on a stock as Commsec do not allow short trades so in this case I'll buy puts. I made a 30% return on NCM in 2 days (on the downside) and the stock only dropped like 90 cents.
I like Options but they aren't for the faint hearted and you have to have the guts to trust your analysis but by the sounds of it there's a better way to trade these little moves with less risk and more return?
(I feel as though I just took a step out into a firing range! LOL)