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Option's time decay is one significant difference
relative to futures which requires you to think about your view of the stock
going forward. Profit potential is primarily a function of you and to a
lesser extent the vehicle.
Bill
----- Original Message -----
Sent: Wednesday, February 27, 2008 10:36
AM
Subject: Re: [amibroker] Re: PA% Upper
limits - was {Absolute value ATR?---> and some hope for building a
sy}
Hi,
I have some experience with options, and it seems to
me that options far in the money can be a good alternative to actually buying
the stock itself. My real question was to know if there is really a big
difference between futures and options and how futures actually compare to
options in term of profit possibilities.
But you are right: options can
be disastrous if one is not cautious!
Louis
2008/2/27, Dennis Brown <see3d@xxxxxxxxxxx>:
Louis,
Bid/Ask Spread, IV, Theta, Beta, Gamma, life cycle of the time decay.
Don't trade options until you have internalized what these mean to
your profits. Otherwise, it would be like trying to play chess without
knowing how the knight moves --you will get slaughtered. Profits are
in the marginal areas. Do some simulations and see how
sensitive the profits are to the cost of a trade.
I have strayed a bit far from the purpose of this forum at this point.
You would be better off looking for more specialized places for these
basics. I learned by using the option tools at thinkorswim, and living
through the life cycle of many trades. Once you understand options,
futures will be a piece of cake to understand --though much riskier in a
significant news event environment.
Best regards,
Dennis
On Feb 27, 2008, at 8:45 AM, Louis Préfontaine wrote:
Hi Dennis, What do you mean by option
having a heavy « overhead »? I had the plan to buy options in the
money when I get a signal from my system. Wouldn't that be a good
plan? In what futures would be better than
options? Thanks, Louis
2008/2/26, Dennis Brown <see3d@xxxxxxxxxxx>:
Louis,
I trade stock, options, and futures.
Futures are leveraged. That means that you are essentially
borrowing the money to buy and sell an index with a small "down
payment". Say you wanted to trade the SPX S&P 500 index
($1381.29 close today). You could trade the SPY ETF for
$138.36/share. It will cost you $69,180 for 500 shares and you get
$50 profit per SPX point ($34,590 on 2x margin, or $17,295 on 4x day
trader margin). You could trade the ES futures contract for about
$5000 down payment on 1 contract to get the same $50 profit per point.
That is a lot more leverage. With a $100K account, you can
do a lot more with futures than stock. However, with leverage, you
can lose more than the size of your account --very quickly. Money
management and working your way up to more leverage with experience is
an absolute requirement. In the US, futures profits are given
more favorable tax rates.
Options allow you to have leverage similar to futures and risk no
more than your purchase. However, they have a heavy "overhead" per
trade.
Each has its advantages and disadvantages and it is best to tailor
their use to a particular situation.
Best regards,
Dennis
On Feb 26, 2008, at 10:35 PM, Louis Préfontaine wrote:
Would you consider there is more money to be made from futures
than from stock? Louis
2008/2/26, brian_z111 <brian_z111@xxxxxxxxx>:
http://en.wikipedia.org/wiki/Larry_Williams_(trader)
http://www.robbinstrading.com/worldcup/standings.asp
Scroll
down for historical results.
---
In amibroker@xxxxxxxxxxxxxxx, "brian_z111"
<brian_z111@xxx> wrote: >
> Howard, > > >Any
time someone suggests a growth of more than about 40%
per year, > >take
that with a very large grain of
salt. > > I expected you to disagree
with my statement. > I'm sure a lot of traders would be aghast
at the numbers I
quoted as > the
theoretical potential. > > At his
website Professor John Price posts audited returns of
approx > 20-25% PA over a 5 year period, or
more, using simple Techno- > fundamental methods (as I recall
the figures). > > The caveat there is
that the sample period is short and
selective. > > Trading on margin that
would return 30-35% PA with less than
half an > hour a days
work and no effort to use any other timing
mechanisms. > > If your statement is
true we can all give up any further
efforts and > simple
trade his method. > > Similarly, the
ASX, which is a high dividend paying market (due
to > franking) has total returns of in
excess of 15% PA on average over > longer
time periods. > Using simple leveraged buy&hold strategies
that is 20-25%
without any > ongoing
effort required what-so-ever. > > In
"Stock Market Wizards", Schwager, Jack.D, Harper Business
2001 the > first page
of the first chapter in the book quotes Stuart
Walton, > fund manager, who achieved "115
percent average annual compounded > return
in trading profits" un 8 consecutive years during
the nineties. > >
As I understand it Schwager's books are well researched and
based on > verifiable
case studies? > > I only opened the
book at the first chapter and didn't need to
go any > further or
to his other 2 books containing similar
testimonies. > >
brian_z >
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