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Let's try to be clear on what I said.
I'm an officer of the CBOE and therefore cannot trade CBOE equity options or
index options. So the only vehicles I have available are listed securities
options at other exchanges..and there aren't many of those left. Or futures
options. The primary market I trade is the S & P options at the MERC. This
marketplace gets about 60% of it's open interest from CBOE......either the
OEX/SPX folks laying off what they trade at CBOE. Or from folks like myself
who can't trade the CBOE product.
Tim makes a couple of interesting points. Volume, O.I. and volatility in the
futures options are often different. THAT IS EXACTLY the point and that is
why it becomes the trading vehicle of choice. The issue of transaction costs
is somewhat irrelevant..although not totally irrelevant. The reason it is not
critical is that I would be willing to trade marginally higher costs for not
having to use restrictive stops. In reality when you compare transaction
costs in future options to transaction costs in security options you find that
futures options are actually cheaper. Not cheaper than futures based on
notional, but cheaper versus securities options based on notional.
I'm primarily a volatility trader and YOU GET MANY MORE OPTIONS TO TRADE VOL
at the CME options pit than in the securities options pit. Vol spikes are
often bigger and more intense, although lately(the last couple of weeks)vol
spikes could have been found all over the place. Not easily traded this last
couple of weeks, but they were around quite frequently.
I'm a spreader. I'll trade backspreads and straight bull/bear spreads.
One of the challenges I encounter is I travel a great deal. I do a couple of
hundred option seminars a year for CBOE so one of the critical issues is
having an outstanding broker. I'll avoid endorsements, but I am stunned by
how much I see on realtraders relating to disappointing execution. Would you
rather have superb service or the cheapest execution possible. Too fee people
look at the total "friction" of a trade. friction is execution
costs..slippage and b/a spread. All too many people focus on execution costs
and then HOWL when they get on the other two. Again I'll avoid an
endorsement, but I would encourage everyone who trades to go visit the booth
of their executing broker before they ever place a trade on a futures floor.
Some of this MAY go away as the consolidation of exchanges occurs and more
customer friendly electronics are employed at the futures exchange.
Not to pander, but your recognize that in the institutional securities
industry about 60% of what gets done is all electronic already.
Tim Ryan wrote:
> >>Since THE DOCTOR at the CBOE told me that he day trades options everyday
> >>for a living I’ve been thinking about it some more.
> Hmmm...since the CBOE trades equity options I am not sure how useful
> that piece of advise would be in regards to trading futures options.
> Just a thought.
>
> You might want to study the volume/OI statistics and look at some
> EOD/Intraday charts for the options/markets you are considering. This
> should give you a good idea of what markets are liquid enough to day
> trade.
>
> If you go ahead with it, I recommend that you study the option pricing
> formulas. Since you are day trading, time decay shouldn't be too much of
> an issue but you will need to understand and evaluate the delta of an
> option (how it moves in relation to the underlying). Also, arbitrage
> trades will have a huge effect on option markets so in that sense, you
> will need to know the other attributes of an option (implied volatility,
> etc.) to make an educated guess at what the arbs will be doing.
>
> Finally, transaction costs are much higher for option trades (depending
> on the firm used of course) which could make day trading options (which
> by definition will require a large number of trades) very expensive and
> could indeed put your whole trading into the red even if you are correct
> in your market trades.
>
> --
> Regards,
> Tim Ryan
>
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