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Options are both a blessing and a curse. The curse is the lack of liquidity in
many of the futures options as well as many stock options. Unless you are a
covered writer and looking for income from time erosion on a position that you
wish to keep, there is little reason to keep an option till expiration.
Options are a trading tool, an aide to protect against abnormally volatile
moves or limit moves in futures. Options are also great protection from the 3%
factor that will inevitably show up at the least expected time. I will use an
option for protection on any position that trades in a night session. I don't
like surprises and my account likes them even less.
If you use options, use them as a trading tool, not as an investment. Use them
as protection and it allows you to trade the underlying without placing and
canceling stops. Use short term options against leaps, futures and stock. Learn
the various strategies that allow you to trade and not stagnate. Trading is
what this is all about and profits are the objective.
have a good week, Ira.
BrentinUtahsDixie wrote:
> I agree with Jerry that you still have to manage the trade and know where
> you want to exit your positions.
>
> The usefulness of using options with futures contracts is that you are
> buying a little breathing room so your stop need not be as tight and the
> fact that you can often profit from the trade even though you are wrong at
> the outset. You must still sell the futures contract or the Option(s) if the
> move is against them, but your option(s) are making money while the future
> is losing it or vise versa. So you can wait for important support or
> resistance to be taken out before dumping either side.
>
> As the DR pointed out you can simply trade the options to begin with and not
> trade the futures at all, there are pros and cons for using options only.
> The options have a nasty habit of expiring just before a good move develops
> and before the end of the contract so beware of congestion especially before
> expiration. Option values crash rapidly near expiration and I'd say that
> they rarely make an objective as they near expiration.
>
> You still need technical and/or fundamental analysis to determine to the
> best of your ability what the trend is and when the timing is good for
> making the trade etc. One thing I liked about MetaStock when I tried it was
> that they had an indicator called something like the Permission Index that
> gave you a good idea when to and when not to enter a trade. I use other
> means to determine the same sort of thing.
>
> Well I learned a lot, hope this helps someone besides me.
>
> Brent
>
> -----Original Message-----
> From: Jdonato98@xxxxxxx <Jdonato98@xxxxxxx>
> To: realtraders@xxxxxxxxxxxx <realtraders@xxxxxxxxxxxx>
> Cc: tinyeung@xxxxxxxx <tinyeung@xxxxxxxx>
> Date: Tuesday, June 22, 1999 8:12 AM
> Subject: Re: OPTN: Market on Close
>
> >Mervin,
> >I don't think you really want to replace stops with options. You are still
> in
> >a bad trade without a stop on your original position.
> >You may want to protect yourself from a big loss with an option, or take an
> >opposite position using options, but you should never enter the market
> >without an exit strategy.
> >You can limit your loss within a comfort zone suitable for your style of
> >trading with stops, but not with options.
> >It is very easy to get whip-sawed in high volume markets, and have a losing
> >position on both sides of your trade.
> >All the best,Jerry
> >
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