Swing Trading Options???? Posible???

[mukeshpatil82]

Hi Guys,

Came here after a long time...very busy with half year end.

Recently came up across this idea for swing trading options in a book.

The author recommends using normal technical analysis to BUY calls or put for a max holding period of a week or so depending on the trend.

Is that really practical?

1. He provides no input regarding strike prices selection but favors using ATM or slightly OTM strikes to reduce risk exposure,

2. Says its not required that u consider the IV,HV,delta,Vega of the option.With respect to theta he says that the option expiry should be roughly twice your holding time frame to reduce exponential theta decay.


Im really confused with this strategy.Even if the price responds favorably to my speculated direction, its must at least reach my (strike price+premium paid) to break even.

When I pointed this out to a trader, he said that is only true at expiry.

Need opinion guys, would you speculate with OTM options for swing trading.Prior to expiry, even if the price does not reach our theoretical break even( strike price+ premium) can the trade be profitable??

Really confused with this one, please provide some clarification

 

[mukeshpatil82]

Personally I will never buy ATM options so must go for OTM options.

But if the price goes in the direction of my option, can the value of the option increase just by delta and combat both vega/theta to make the strategy sucessful.

Im assuming here that vega will remain stable, if it decreases then all the more problems.

I cant belive it that such highly acclaimed books contain such crap strategies.Or am I the fool and not getting the strategy?

 

[rrmhatre72]

Personally I will never buy ATM options so must go for OTM options.

But if the price goes in the direction of my option, can the value of the option increase just by delta and combat both vega/theta to make the strategy sucessful.

Im assuming here that vega will remain stable, if it decreases then all the more problems.

I cant belive it that such highly acclaimed books contain such crap strategies.Or am I the fool and not getting the strategy?

Check this one. Somebody is doing swing trade in options.....

http://www.traderji.com/options/46280-my-options-picks-intraday-delivery.html

 

[option fan]

yes possible

but think abt ATM or ITM...
i think it will be better

and personnely speaking... i will trade deep ITM if its abt swing trading

 

[DanPickUp]

Personally I will never buy ATM options so must go for OTM options.

But if the price goes in the direction of my option, can the value of the option increase just by delta and combat both vega/theta to make the strategy sucessful.

Im assuming here that vega will remain stable, if it decreases then all the more problems.

I cant belive it that such highly acclaimed books contain such crap strategies.Or am I the fool and not getting the strategy?

Hi mukeshpati

If you read a book, you have to be clear, by who it is written and which market in the world does the writter trade.

As not every market gives the same possibility as other markets do, the writer may is ok in his market with such a strategy and in Nifty options it never could work well, as the Nifty option market is not very well developed.

May we know, who the writer is and what market he trades ?

Take care

DanPickUp

 

[mukeshpatil82]

Thanks 4 the response ppl.

The books is by Michael Thomsette..forgot the name though..

Assume

Buy Option for swing trading:

Assume underlying price :100,

Trend Up:

Brought Call: 120,Premium: 5

Expiry : 4 weeks(assuming holding period of 2 weeks),

If price remains below 125 anytime during this period this strategy will provide loss,if the volatility decrease/remains constant/increases gradually we lose,and the theta will eat up the value steadily...

The only way to win is within two weeks or so: delta must increase, vega must increase, price should be above 125 as fast as possible,

If I go for DITM options, i risk a lot more money.

Its difficult enough to predict price, here i have to predict price,time,volatility...if somebody is so confident why not just buy stock/future?


Now is there any way where that if the stock does not reach 125 but increases above 100 somewhere and gives some profit prior to expiry

Seems like a lottery ticket..

 

[TradeRaid]

Options in India are fairly new and it's gonna take a little more while before they become commonly traded. I always considered myself an options trader for two reasons:
1. I thought it sounded really cool - Options Trader (naive, I know)
2. There was very little STT charged on Options.

Now things have actually gotten better. Cost of trading options and breaking even are the lowest they've ever been in this country. There is nice liquidity in options, too. So it does really give the risk taker an 'option' to win big and still limit losses.

I just hope the Government of India doesn't realize the loophole it has created for traders by charging STT only on the premium. Hopefully, things will stay the same and more and more people start trading options.

 

[DanPickUp]

Hi mukeshpatil

Let us assume, the option market gives us all possibility's and the broker even gives us good filled option prices with normal bid ask spread and good volumes. Let us assume, that the volatility is high and the market is in sideways moves .

If you would go for such a swing trading strategy with options, you first have to analyze your chart, as you may do not have the knowledge in adjusting and converting option strategies.

You would have to be very clear in what time the market would do such swings. If it takes four weeks and you plan a trade in the time frame of two weeks, it will not work.

No, let us assume, that you did make the right analyzes and the chart shows a range between 100 and 125 up and down on an EOD chart.

You then buy the call 120 by 100 and you sell the call, when market starts to turn down by 120. By 120 you buy a put 100 otm and you sell the put, when market turns up by 100. Here we speak about one way of swing option trading, as there are many, many ways to trade it.

Now to what you wrote :

You already start a discussion with the statement : TREND UP !
As next you speak about : If price remains below 125 and so on.

Buddy no no no.

You talk about a TREND TRADE and the writer from the strategy talks about a SWING TRADE. You also talk about a range, which happens in Nifty. But there are markets, where you can trade ranges from one or less point moves with options !
Clear about that ?

I mean, I can start a discussion with that kind of arguments, that I already pushed the thoughts in a way, where I want to have them, as my answer in my head is given by the thoughts, I think it must be and only can be right. WRONG !

Clear, I do not buy a call, when I know in advance, that market never will reach my target or that I have to pay to much because of the high volatility. Clear, it is difficult to predict markets.

You now have to make a decision : Do I want to trade futures / shares or do I want to trade options ?

As an option is a very different derivative compare to the future or share, I have to know and to learn, how to handle them, when I enter the market in any situations. It is not, that the idea to trade option in swing trading is wrong.
It is the ( lac of knowledge and expirience you are missing )*. And here are we back on the posibilities a market gives. If you trade options on nifty, difficult for such stuff. If you trade options on the CME in Chicago, it would be ( )*

Take care

DanPickUp

 

[Ulaanxuu]

Swing trading with options is a very viable strategy, and it requires the same level of technical analysis as simple swing trading. It can be hugely profitable, and the main advantage is that swing trades are normally very short term (3-10 days), and so you are not affected so much by time decay.

You have a choice of two strategies. DITM (Deep-in-the-Money) options, with a Delta close to 100 are an effective way of approximately doubling your leverage on each trade. It works because your investment (depending on the volatility) is usually about half of that for plain swing trading, but the return is the same.

The second stratgey, which is significantly more profitable, is to to use near the money options (mostly OTM) so that your are not paying for intrinsic value. You would also trade options that are two to three months out from expiration, so that you do not pay too much for time value, but also don't get stuck in a time decay downward spiral that happens just before expiration.

Technical analysis is two step. Firstly, you need to establish a trend. I typically do this by using the 10day moving average (MA) and the 30 day EMA. I confirm the strength of the trend using the Wilders ADX (anything above 25 is good). I also look at RSI to be aware of possible trend reversals, along with support/resistance levels.

Once I have a good trend, I use candlesticks, and oscillations between trend lines, to determine trade entry and exit.