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Thanks DOC for setting us straight on this. I definitely had it wrong,
having assumed that DOC traded OEX options which he has pointed out that he
is prohibited from doing. One thing is for certain I would have to gear up
for that kind of trading. Meaning that I would need real time access to
options quotes, Volume, Historical Volatility, and Implied Volatility. One
quick observation, I seems to me that Implied Volatility lags Historical
Volatility in most time frames. I have no proof but it seems that way to
me. I appreciate those that have and will contribute to this thread. It has
given me a lot to think about.
Regards,
Brent
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> From: THE DOCTOR <droex@xxxxxxxxxxxx>
> To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
> Subject: Re: Day trading futures options.
> Date: Sunday, August 02, 1998 11:07 AM
>
> 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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