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Futures also have time decay, but it is at a more sensible rate tied to the current interest rate. Futures also expire and must be "rolled over" to stay in a position. With options, you can buy LEAPS which have a long time to expiration, and a more sensible time decay. However, the bid/ask spread is larger, and the short term leverage is less.
Dennis On Feb 27, 2008, at 11:42 AM, wavemechanic wrote: 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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