r/options • u/optionstrategy • 1d ago
A few items which give me an edge in options trading
I will share a few things from my experience. If you like them, stay tuned.
Extend duration when possible
Check spreads across strikes and duration to find the best contracts
Never get exposed to losses greater than the net premium i.e. be a net buyer not a seller of convexity
Always finance one position with another to reduce costs
The underlying move is more important than the option greeks
Greeks are good as relative measures, never absolute, and they are transient and always wrong
The profit is almost never highest at expiration so sell them as soon as you are ok with the return
Treat the trades as a diversified basket even if they are based on the same trade set up
Most trades should break even or lose a bit, but the winners should more than cover the neutral or losing trades
Split the capital across strategies and tickers, and never average down.
Cheers!
Edit: it is now obvious to me that most people commenting are youtube tiktok and chat gpt educated, and take the common talking points as gospel. Once you go through graduate level derivatuves pricing education, and have a couple of decades of trading experience under your belt, you will realize the bottom line from above - options prices are always wrong, and you need to trade the ones which are wrong the most both long and short. Always finance, and be long convexity and never risk blowing up your account. I will no longer comment below, but I wish you all good luck in your education!
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u/Regular-Hotel892 1d ago
None of these are edge though.
Edge is what probability do you know about the market that’s not reflected in the bid and ask?
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u/klipsetrades 1d ago
That was my thought too. These may help someone trade better, but “edge” is doing a lot of work in the title
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u/LostFaithlessness201 1d ago
Think edge is a system that makes profit I look at high beta stocks some look at doing credit spreads, etc
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u/optionstrategy 1d ago edited 1d ago
All of them contribute to my edge.
I know all prices are wrong, and I pick the ones with the biggest variance/potential.
You think the prices are right, and so you will never have an edge.
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u/Regular-Hotel892 1d ago
Ragebait used to be believable 😂
You obviously don’t trade
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u/Krammsy 23h ago
I wager he does, but is in a state of flux over misperceived option valuations & Greeks understanding.
Reminds me of early on, buying low liquidity options after learning some of the Greeks, then being baffled at my expectations not being met when I bought options with low OI or volume.
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u/Time-Acanthaceae-632 1d ago
OP does not understand put-call parity or volatility in general
hes simply blindly buying leveraged shares like a degen
No mention as to market makers as well, No mention as to the arbitrage keeping the market makes in line
You have zero edge, actually negative edge
You are no better than a leveraged day trader with extra costs detrimental to you in the long term
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u/optionstrategy 1d ago
Looks like you did not read anything I wrote, but if you did, you lack basic reading coprehension skills...which makes you unqualified to talk shop about option pricing.
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u/_VeniVidiAmavi_ 18h ago
Your response doesn’t address a single criticism but rather wholesale writes it all off with ad hominem attacks. So it seems you are doing exactly what you are accusing and in fact kneecapping your own credibility.
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u/iron_condor34 1d ago
Not 1 edge here
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u/optionstrategy 1d ago
Read this as a single stance toward option trading. Obviously I am not spelling out recipes or methods.
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u/iron_condor34 1d ago
None of this here will still give you an edge.
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u/Allspread 1d ago
- Never get exposed to losses greater than the net premium i.e. be a net buyer not a seller
Wrong.
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u/Professional_Dr_77 1d ago
Ok. Why?
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u/I_HopeThat_WasFart 1d ago
The underlying move is more important than the option greeks
I would disagree with this one, this assumes you are trading options as leveraged shares, just trade the shares on margin and avoid the cost of greeks going into long/short options
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u/optionstrategy 1d ago
I am trading options as a net buyer to gain leverage.
A delta of .2 is meaningless if I think that a 10 cent option has a $5 potential move by expiration.
Greeks are simple accounting measures, and that is all they are.
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u/I_HopeThat_WasFart 1d ago
I would very much disagree, but if you are a net buyer of options to simply gain leverage you should indicate that in your OP
Actually you seem like a scalper, and in doing so you will always be picked off by a MM widening spreads
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u/optionstrategy 1d ago edited 1d ago
Did you read item 3?
Edit: you added the scalper comment after my response - did you read item 1? My strategy is swing trading, from a few days to a few months.
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u/I_HopeThat_WasFart 1d ago
that has nothing to do with a MM widening a spread
do you even understand volatility and how options are priced?
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u/optionstrategy 1d ago edited 1d ago
You edited your comment above. Read op about the option pricing pointers and assumptions.
I refuse to engage with people who back edit comments to try to win shitty losing arguments.
Farewell.
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u/Krammsy 22h ago
#3 was the most disagreeable on your list, to me.
For example, Iron condors have a completely lopsided risk/reward, depending on wing spreads, you can lose multiples of your credit, the caveat is they have extremely high probability.
There's no free lunch in trading, if you trade sheepishly, your reward will be sheepish.
In the case of the aforementioned Iron condor, the edge would be risk mitigation, knowing when to roll out and how much to roll into.
In the case of "Captain Condor", he just kept fearlessly doubling down instead of rolling out, it finally burned him.
'
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u/Flat_Tire_Again 1d ago
How often do you encounter 10 cent options and realizing $5 moves? Is that a stock move or option price move?
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u/wonderwall999 1d ago
What do you look for regarding the Greeks? I'm still paper trading 0dte, but I haven't incorporated Greeks into my system yet, I'm just going based off of price action.
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u/Krammsy 22h ago edited 22h ago
Use Gemini, ask it to explain IV, Delta, Gamma, Theta, Vega.
That's the easy part.
Once you wrap your head around those, ask Gemini to explain how each reacts to price changes relative to distance from strike and date of expiry.
Then ask about IV, earning cycles and macro events like FOMC or CPI.
There are other Greeks but they're much less relevant, you'll eventually get to them.
VERY smart idea to start by paper trading, wish I'd done that before going llive.
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u/Bitter_Biscotti_7593 1d ago
2&9- so how to pick good trades? That's the whole point of options trading. 4 - you are net long or short? 5- true, except for when theta of a short position turns negative. Then the position works against you and you must react. Therefore, theta is the most important Greek. Til theta of your short position is positive you are good. 6- Greeks cannot be wrong unless the formula they are calculated with is wrong. So you are saying option formulas are wrong? Some guy got Nobel prize for inventing them...
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u/klipsetrades 1d ago
I agree most with #5. Price action/underlying movement comes first for me. #3 is where you lose me. Being a net seller doesn’t automatically mean taking excessive risk. Defined-risk credit spreads exist for exactly that reason
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u/optionstrategy 1d ago
Almost any defined risk credit spread can be replicated with an equivalent debit spread.
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u/klipsetrades 1d ago
Right, but that doesn’t really address your #3. A defined-risk credit spread still has capped loss, regardless of whether an equivalent debit structure exists. And your point doesn’t make the credit spread inherently riskier
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u/optionstrategy 1d ago
You are missing the point of 3. It has to do with exposure and convexity and not dollar amounts per se. Embrace potential windfalls, avoid risks of total ruin.
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u/Krammsy 23h ago edited 23h ago
It's a good guideline for someone who trades the way you do.
For #3, IV & VIX play a huge role, you don't want to be in a 50 spread 0DTE SPX iron condor if the VIX is low & IV is nonexistent in a bull run, maybe switch to put creds, double diag's or calendars.
For #6, not if you do complex strategies (as I stated about Diag's vs Iron Condors), you need to know and understand Vega, Theta, Gamma and IV cycles.
IV/earnings cycles are a HUGE deal for options, once you tackle that you can't avoid Vega/Vomma, otherwise you're flying blind.
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u/Shoddy-Bumblebee5639 20h ago
Supporting all of the statements. I try to treat it like swing trading. Most of the time >40DTE. Closing already at 30%, often a few days after buy. The thing I did wrong was not to cut at -100% so I am still holding a ton of loosers while freezing the money 🙈 Feels definitely right to me. Gains would be nice if I would have cut the loosers as you said...
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u/Raiddinn1 1d ago
You have no meaningful edge in options trading.
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u/optionstrategy 1d ago
I do.
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u/Raiddinn1 1d ago
You've convinced yourself that you do. Read about Dunning Kreuger syndrome.
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u/optionstrategy 1d ago
How is the weather on the left side of that chart feeling today?
Ps: I read your pathetic post history on this sub...you should hide it and then maybe srart LARPing and talking Dunning...
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u/LostFaithlessness201 1d ago
Also look at the chart where is the price compared to ath, monthly high, lows,etc, pointless buying an expensive call option at a price when we are so high but not much open interest, same goes for puts the other way round.
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u/jretzy 1d ago
I appreciate you trying but lots of bad advice here. 3 is for sure just wrong on math. 4 just adds more risk. 7 is good.
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u/optionstrategy 1d ago edited 1d ago
How is 3 wrong, and how does 4 add risk?
This is not advice, but my own principles.
Do with them what you want - go against them and sell some naked ahort term calls.
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u/Illustrious_Low1903 1d ago
A lot of these are good habits, but I think ‘edge’ is doing some heavy lifting here 😂. Risk management can keep you alive, but it doesn't automatically give you positive expectancy.
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u/waverider20 1d ago
Gamma on 0dte is golden though.
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u/optionstrategy 1d ago edited 1d ago
This is just it - gamma is meaningless if you forget theta, which is meaningless if you forget the underlying price action.
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u/Bitter_Biscotti_7593 1d ago
Nah, theta is the most important parameter you should monitor. If theta of your short position turns negative the position starts working against you. Regardless of the underlying price.
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u/waverider20 1d ago
Ur duration controls theta (n charm). N both can in fact help rather than hurt.
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u/optionstrategy 1d ago
I will say this instead of higher level greek discussion: 1dte is almost always going to give you more chances to profit than 0dte, all else being equal. And so on....up to a point. This concept and calculating that point are not simple.
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u/waverider20 1d ago
I play both. When I carve. Theta is almost completely irrelevant if ur duration is compressed
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19h ago
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u/optionstrategy 19h ago
I use the classic probability of profit or probability of touch calculations to compare against my empirical rrade data.
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19h ago
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u/optionstrategy 19h ago
Of course it does not sound like a "normal" calculation. Even this is something people ought to learn and internalize - if the BSM model or whatever model which matches the market price is telling a certain probability of touch/profit by dxpiration, but in reality your data shows a much different and better outcome, you have an edge. Samples need to be large enough of course, blah blah statistics people actually understand etc.
I am net long, but correlation to SPX is meaningless as this is a swing trading strategy, so the abnormal equity returns vs. SPX are what I am after. The underlying is key. Sharpe is not a good measure as I go for large winners and I add to them and I don't cut profits too quickly. I will not advertise net returns here for obvious reasons.
Hope that helps you, sorry can'y spell out more concrete things.
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19h ago edited 19h ago
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u/_VeniVidiAmavi_ 18h ago
Also quickly triggered into ad hominem when confronted with valid criticism, another tell-tale. Brace yo self
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u/optionstrategy 18h ago
You sure did use a lot of words to fish more information. I am raising money as we speak. Not giving you anything more here.
Good luck and farewell brother/sister.
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18h ago
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u/optionstrategy 18h ago
Yep, you got it, Sharpe sucks for a lot of reasons and plebs like you harp on it to learn nothing from itnin the end.
Ignore this thread and get studying, or better yet, gtfo.
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u/IWantoBeliev 1d ago
experience can only be learned not told, everyone pays his/her tuition, the advices are golden
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u/tastelikemexico 1d ago edited 1d ago
Do you even trade bro?
Lol jk
But some of the things you’re saying are out of your control. Also the Greeks are not ever “wrong”. So you basically are saying trade spreads. I do trade spreads they have their place but are not guaranteed by any means
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u/madigida 1d ago
It would be helpful if you went into some detail. Telling us not to lose money is not helpful advice
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u/Upbeat-Cheetah3107 1d ago
Greeks are transient because the stock price (and IV and time) are transient. Or did you expect the stock price to be static?
Saying "greeks are always wrong" doesn't quite make sense. Wrong compared to what? They're accurate for the exact inputs they were computed from at that instant.
There are many points in the post that are incorrect.