Hi
Today I surfed some time in the net. Nothing special, just relaxing a bit. I then felt over a tricky conflict question, which I found very interesting. In my opinion, a very aspiring and ambitious question to think over and so I like to share it here. There are various answers to that and I am wondering, what yours is. Now to the question :
""Why do you use naked itm options for directional trading instead the future or the share ?""
I had to agree, that for certain ranges, if traded with naked options, itm options for directional trades are best. Itm options have a higher delta compare to atm options or otm options. If I have a higher delta, like itm options have ( 51 - 100 ), my options will sensitive r move in context with the underlying ( Future or share ). Gamma will have little effect, when I trade deeper itm options. I also can reduce vega, when I use deep itm options, which are near expiration. The same is known with theta. As nearer I am to expiration, as less I can lose on that.
Now to the next part :
""What risk do we, take when using deep itm options instead using the future or the share ? Consideration explained like that :
If you use deep in the money options, you have to have a trading plan like you have to have one when trading the future or the share. This plan, as we know, defines the stop loss, the exit, the follow up on certain occasions, ( the repair strategy for the options, if meaningful ), and if needed other aspects.""
Finally the one point which made him asking this question was this :
""The amount of money for the stop loss used for the naked itm option or the naked underlying ( Future or share ), can be the same for both.""
Resultant from the past written comes the real and legitimately asked question :
""Why the itm option and why not direct the underlying ? What is the advantage or disadvantage of it ? Is it just that some like to trade options and others like to trade the underlying's or has it to do with strategy decisions ( Hedging ) or what is it ?""
What is your meaning to that question ? By asking and explaining this question, did he miss some points or did he fail to see some points which would give a direct clue to solve the conflict and tell : Yes it is the itm option or it is the underlying ?
DanPickUp
Today I surfed some time in the net. Nothing special, just relaxing a bit. I then felt over a tricky conflict question, which I found very interesting. In my opinion, a very aspiring and ambitious question to think over and so I like to share it here. There are various answers to that and I am wondering, what yours is. Now to the question :
""Why do you use naked itm options for directional trading instead the future or the share ?""
I had to agree, that for certain ranges, if traded with naked options, itm options for directional trades are best. Itm options have a higher delta compare to atm options or otm options. If I have a higher delta, like itm options have ( 51 - 100 ), my options will sensitive r move in context with the underlying ( Future or share ). Gamma will have little effect, when I trade deeper itm options. I also can reduce vega, when I use deep itm options, which are near expiration. The same is known with theta. As nearer I am to expiration, as less I can lose on that.
Now to the next part :
""What risk do we, take when using deep itm options instead using the future or the share ? Consideration explained like that :
If you use deep in the money options, you have to have a trading plan like you have to have one when trading the future or the share. This plan, as we know, defines the stop loss, the exit, the follow up on certain occasions, ( the repair strategy for the options, if meaningful ), and if needed other aspects.""
Finally the one point which made him asking this question was this :
""The amount of money for the stop loss used for the naked itm option or the naked underlying ( Future or share ), can be the same for both.""
Resultant from the past written comes the real and legitimately asked question :
""Why the itm option and why not direct the underlying ? What is the advantage or disadvantage of it ? Is it just that some like to trade options and others like to trade the underlying's or has it to do with strategy decisions ( Hedging ) or what is it ?""
What is your meaning to that question ? By asking and explaining this question, did he miss some points or did he fail to see some points which would give a direct clue to solve the conflict and tell : Yes it is the itm option or it is the underlying ?
DanPickUp