Looking for some advice. Which do you think is the right fit as far as trading goes for someone who will have a small account ($1k) and works full time 9-5?
I can check charts throughout the day but can’t really dedicate myself to just watching the charts.
Videos
Which one would be the best to pursue as someone just getting into the market?
It seems like any strategy I look at you need a pretty massive win-rate with options (assuming reasonable stop-loss at recent pull-back) in order to be profitable. If you sell into weakness... which is what a stop-loss is, the contract value degrades super fast. So what might look like a 1:1r on the chart in terms of raw price is actually a 2 risk 1 reward most of the time for the same distance of price traveled.
I don't really understand the greek in depth it's not my wheelhouse, just wondering what the best instrument is for someone who doesn't want to have to scalp with a 90% win-rate to be profitable. If I like to trail pull-backs, do futures also share the same problem as options? Would forex be best? etc.
Thanks.
I dabbled in futures a long time ago so I'll limit my chatter to options, which I have utilized for 30+ years.
It's impossible to answer your question succinctly because there are a myriad of ways to trade options. You can be long or short. You can gamble aggressively with them and you can use them conservatively for income, as well as multiple gradations in between.
The risk involved depends on whether you’re a buyer or a seller and if the options are standalone or combined with other options and/or stocks.
For the Average Joe I'd suggest basic strategies:
Sell cash secured puts if you are willing to own the underlying at the strike price less the premium received. If assigned, you'll buy the stock at a lower price. If not, you'll collect some income.
Sell out-of-the-money covered calls if you are willing to sell the underlying at a higher target price. If not assigned, you'll collect some income, increasing your yield.
If you're seeking the premium income with reduced risk, sell vertical spreads so that you have the inherent protection of a long leg and a more favorable Risk/Reward ratio than naked selling. This is the equivalent of a long stock collar which can be set up at no extra cost beyond the cost of the stock, offering a modest upside profit potential and far less risk than outright ownership of the stock.
If implied volatility and dividend yield are moderate to low, consider high delta LEAPS as a surrogate for the underlying because of the low time decay - also called a Stock Replacement Strategy. It will have almost the same upside potential as owning the stock and much less downside risk.
More sophisticated strategies should be left to knowledgeable investors/traders.
In short, the answer depends on how you define 'trading options'.
This is why I trade options. Leverage. When I look at a stock that I feel (no guarantees, of course) is about to have a run up, options are the way to get the most leverage. I saw a potential 50% increase in this stock, and the typical investor might consider buying some on margin. 100 shares, $15000 cost, $7500 out of pocket. Stock rises to $210, a $6000 gain less margin fees. About an 80% return. For the trade above, an option spread, the out of pocket was $1050 for a potential $9000 gain. A far higher return with less at risk. Of course, in the one year, the result is a potential 100% loss if the price doesn't move at least 30% or so.
This is one strategy, the one I use most often, with enough success that the losses don't bother me. To be clear, I don't call this 'investing', but rather 'gambling', but in a way where I know the exact potential return, and with some analysis, use of Black Scholles models, the odds of these events, or at least what the market currently shows the odds to be.
(The same day I traded the above, I looked at the same type of trade a year out, to have 2 years for the stock to recover. The $240/$250 spread was priced, and filled at $1.)