Anyone can help me with my above questions?
JFC mate we're not a paid service here. You can wait more than an hour and a half before posting a followup. If you want like 90-minute turnarounds I charge for that.
Anyway, oh man there is a lot going on here. Let's get started.
I require help in trading options? Can some options experts clarify my queries? I have zero knowledge and experience about option trading and contemplating whether should I venture into option trading?
Nope, you probably shouldn't.
Is trading option more lucrative than trading stocks? Is trading options a safer option, if you know how to hedge your risk? Would you choose to be a nett buyer or nett seller in options? If one account is small, can we use option to trade, where options is a leverage to trade stocks or futures? As compared to stocks, where you need large capital? Buying stocks are extremely RISKY, do most of the investors lose money in stock market? Is there no way to hedge your risk for buying stocks except to set stop loss? Penny stocks are exteremly risky, will the company bust if you are not careful? Is it worth holding a stock when you have lost a lot of money, hoping it would bounce back? Hence, is trading options a safer option as risks are hedged?
In order: Maybe. Maybe. Buyer, but reasonable people disagree. No. That's not even a question. No. Sure there is. Yes, penny stocks are risky. No, that's dumb. Depends whether you're net long or short.
Is trading futures like Crude Oil, S&P 500, Nasdaq, Coffee, Natural Gas profitable?
Futures are inherently zero-sum. Think about this: if you buy SPX futures, you have to buy them from someone. And if you make a profit, that someone that you bought them from is going to make a loss.
I frequently see these terms I read on the Options Book from Lawrence G. McMillan...but was quite unsure about it, hence making some wild, random guesses about it...
Mate, you have literally no idea what you're talking about, do you? (Also, a Triple Top Breakout sounds like something nasty you'd catch from a wild night out at the Lookout or the Midnight Sun. I think there are antibiotics for that.)
For instance, Crude Oil is bullish, we will go for Bull Put Spread? And for index like Dow Jones Index, do we go for Bull Put Spread only as this index is uptrending?
So here's the deal, and I'm going to stop making fun of you now.
Options are just another way to express your view on an underlying.
If you think the underlying is going up—whether that underlying is a single stock, a stock index, a currency, a commodity, an interest rate, whatever—the easiest way to express your point of view is just to
buy the underlying.
Options let you express a more nuanced view on what the underlying's going to do.
If you think the underlying's going to rocket higher: you buy some low-delta calls. Small premium, maximum bang for your buck if your view is right.
If you think the underlying's going to go a bit higher, but not much: buy some 1x2 call spreads. Little to no premium, nice profit if your guess is right, but potential losses if you're wrong and the stock goes up a lot.
If you think the underlying's going to fart around in a range and then explode higher: buy a calendar spread (sell front-month calls, buy back-month calls). Pay some premium upfront, but less than you'd pay for the naked calls; the tradeoff is that if it moves before your short strike rolls off you're going to make less than you would have otherwise.
There are a squillion kinky-sounding variations on these strategies, as well. Collars! Strangle spreads! Strips and straps! Straddles! The point is that options let you express a more nuanced view than "it's going up" or "it's going down". If your view isn't more nuanced than "it's going up", then there's no point farting around with options; you'd be better off just trading the underlying.
Do we always sell options, and never go for naked options, must do "hedging" by buying an insurance to hedge our risk? For instance, when we sell a Put option of 36, we must also buy a Put options of 39, so as to hedge our risk, in the even the direction is wrong and not to our favour? We can minimise our losses and there is some sort of protection?
Sure, you can sell naked options, I used to do that all the time when I did this professionally. The question is: how big are your balls, and how diligent is your risk-management? You're getting into the sort of area where you can't just set a stoploss order and go to bed.
How much strike price difference for our vertical spread must we set? Is this very essential? For instance, for Crude Oil, must we set a strike price difference of $3 for our vertical spread? Will it affect our profits or losses?
There are no hard-and-fast rules here.
Let's use call spreads as an example. We'll look at the options on the CLN7 crude futures, since that's what you were talking about. Right now, the futures are trading 47.83, and the near-the-money options are trading as follows:
48 strike: 0.66
48.50 strike: 0.50
49 strike: 0.32
49.50 strike: 0.21
If you buy the 48-48.50 call spread, you'll pay 16 cents for a maximum payoff of 50 cents. That's a 3:1 payoff ratio.
If you buy the 48-49.50 call spread, you'll pay 41 cents for a maximum payoff of $1.50. That's a 3.6:1 payoff ratio, but with a lower chance of paying out (because the futures are less likely to reach 49.50 than they are to reach 48.50).
If you're going to do stuff like this, you need to ask yourself "where do I think the underlying's going to end up?". And then "OK, based on where I think the underlying's going to end up, what options strategy gives me the risk-return tradeoff that I want.
And do we look out for the Probability In The Money (PITM) percentage? Let's say the PITM hits 30%, we start repairing early to prevent further losses, ...
See below regarding "repair strategies". Basically they are a lie that charlatans tell to options naïfs.
And on the question on choosing which options chain to trade, is it the longer or shorter expiration date is better? Longer expiration date allows more time to react in case of repair?
Stop fixating on "repair". If a trade goes against you, you don't "repair" it, you don't double up to catch up; you
close out of the trade and move on. Doubling up to "repair" a loss-making options position is what got Dave Bullen and Luke Duffy in half a billion dollars' worth of trouble.
And it true that if the options in out of the money, and expire worthless, the options will not get exercised?
Well yes, this is true by definition, because options can only ever end up expired or exercised; there's no third way.
And for instance, if an options is closed early, we have to pay for the commission fee, hence is it wise to let it expire worthless. And are we not allowed to close at 0.00, as nobody will be willing to buy at that mark price? So the lowest mark price we can close is 0.01, if let say we close early?
Well hey, if someone was offering me any option for zero, my answer would be "I'll buy them all, how much do you want to sell me?".
Seriously though. If you've got a bunch of options that are basically worth zero, a good mental trick I learned is to write them off: mentally mark them at zero. (We used to move these into the "strip" book, because we were "stripping them out" of the position.) Don't hedge them; just ignore them entirely.
If the underlying moves back close to the strike price, and the options suddenly have value: woohoo, windfall gain! Sell 'em and pocket the cash. If they end up expiring, you've written them off anyway and accepted the loss.
Short options, on the other hand: yes, pay the five cents to buy them back. There's nothing worse than being short a truckload of low-delta options that you thought were basically dead, then having them come back to life as spot rockets toward the strike and cost you six or seven figures to close them out before they blow you up. Trust me on this.
Also, options usually trade in nickel increments (five cents).
And at what profit would you close your trade? Would you allow your options to expire worthless or when you have amassed 75% of the profit, you close early?
Again, personal preference.
And do you trade crude oil by Bear Call Spread, Bull Put Spread or Iron Condor? As Crude Oil price is largely one directional movement, would it be too risky to trade by Iron Condor?
Mate this is gibberish, I don't even know what you're saying here.
Firstly, there are also "bull call spreads" and "bear put spreads".
Secondly, crude is not a one-way market. Over the last couple of decades it's gone from $12 to $150 to $20 to $50.
Thirdly, remember what I said above about "options are a way to express a more nuanced view on the market"? Iron condors (you don't need to capitalise it) are a way to express a view that "I think the underlying is going to be rangebound for the next week, month, three months, year, whatever".
And when do we use Iron Condor? Is it suitable for stocks or futures that has no direction, directionless, very little movement up and down?
Yes, that's the idea of short straddles and short condors and any other vol-selling trade. If you think the underlying's going to be rangebound, selling options lets you profit from that view—with the tradeoff that if you're wrong, and the stock is volatile, you're going to lose money, probably more than you put in.
And do we trade all our capital into one option?
Don't be a lunatic. No. Never put all your eggs in one basket, whether that basket is an option or a stock or a bond or even just sticking it in the bank.
And is it safe to trade too many lots into one particular stock or future? In the event, when a major event happens, a panic occurs, will you lose a lot of money?
Are you high?
Hence, is it wise to hold counters of different industries? For example Crude Oil, Ten Year Treasury Notes, Gold are the economy based futures. Soybeans, Corn are agricultural based futures. Hence, is it wise not to invest in the same industry based futures and diversify our porfolio. Just in case, when one industry is in trouble, we have the other to back up?
No, seriously, are you high? This is not how diversification works. Diversification is for things that you're going to buy and hold, not for futures positions which are inherently things that you trade.
And I realise that trading in commodities such as wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, soybeans are heavily dependent on weather and they are considered seasonal trades.. For example during rainy seasons, these crops may be heavily affected, hence do we avoid trading these commodities during these periods? Hence, when is the right time to trade these products? Is it by looking at the CBOE Volatility Index, when it is volatile, it it the best time to enter the trade?
Mate, seriously, I have no idea what you're on about here. This is word salad.
Have totally zero experience and no knowledge in options trading, and keen in it. Any experienced options trader can help me clarify my doubts that I have read from the book?
OK, I will clarify your doubts by saying you should stay well away from options. You're welcome.
Anyway. PM me if you want some actual advice on this stuff from someone who did it professionally.
But in general, my repair strategy is as follows. See whether you understand..
For example, Apple share which has been bullish for months suddenly move down drastically from 140 USD to 120 USD.
Hence, my vertical spread (Bull Put Spread) which I have been betting that the stock will be bullish, is in trouble. So what I will do is, roll my sell put further away, For instance, my Vertical Spread- Bull Put Spread is as follows (Sell 100 Put, Buy 95 Put) of the same expiration date.
What I will do is close my exisiting sell put, and open another sell put- 90 Sell Put.
Hence, this is my method, see whether you can understand, that is why my trade will not lose all my capital, I will hedge my risk by repairing before my trades turn awry.
That's not a "repair" strategy, that's "double up to catch up". "Repair strategies" are lies that are sold to newbie options traders to persuade them that options are somehow a sure-win strategy.
If the stock drops from 140 to 120, your 100-95 put spread will have gone from (let's say) 50 cents to $1.50. You'll be locking in a $1 loss on the 100-95 put spread, and hoping that the 90-85 put spread expires worthless and bails you out.
The other thing is: what happens if there's a huge gap down, like SNAP, HTZ or YELP did just this week when they released earnings? If AAPL gaps from 140 to 95, your put spread will have gone from 50 cents to $4.00 or so, and you've just incinerated most of your capital. What do you do then?
