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What is the best way to go long or short?

Discussion in 'Beginner Traders' started by Daniel22, Oct 18, 2015.

  1. Daniel22

    Daniel22 Guest

    If I have an opinion on direction over a 5 to 15 day period, what would be the best way (or ways) to use options to trade that type of signal?
     
  2. ACS

    ACS Well-Known Member

    The "best" way depends on factors such as how much and how fast you expect the market to move and also the underlying volatility of the options in question. A big fast move with low IV might be perfect for simple OTM puts or calls while a lesser move and/or high IV might require a credit or debit spread. More experienced traders could multiply the possibilities greatly but beginners should probably use outrights or vertical spreads.
     
  3. Mark Alpers

    Mark Alpers New Member

    There may be no "best" way. As indicated above, you could purchase an OTM put or call but you could also purchase an ITM put or call. There are plusses and minuses of both. The same is true with spreads. If you are convinced a strong directional move is coming, you may want to try a debit spread (call debit spread or put debit spread) with the long 1 or 2 strikes ITM and the short 1 or 2 strikes OTM. If you are less convinced of directionality, but feel that an underlying is likely to respect a support or resistance area, you may want to try an OTM credit spread (put credit spread if bullish, call credit spread if bearish). Again, you need to understand why different types of directional trades may be appropriate for different situations. Many traders also use butterflies directionally (center of fly where you expect it to be near expiration based on expected move). Since your question gave a 5 to 15 day time frame, I wouldn't necessarily use a diagonal (synthetic covered call or covered put) but diagonals may be appropriate if you have a directional opinion about an underlying.
     
    Last edited: Oct 18, 2015
  4. WAQAR

    WAQAR New Member

    what is the best way to skin a cat? it all depends about your outlook of the market. If you strongly bullish, buy a call and sell a put. If you are strongly bearish buy a put sell a call. If you are mildly bullish buy spreads, if you are mildly bearish buy put spreads. you can also buy a Deep in the money call. Out of the money call or at the money call for bullish position. Reverse is true for bearish position. It all depends on volatility (in case of buying naked calls or puts, skew). if you are bullish sell put spreads, if you are bearish sell call spreads. we can go on and on about this. there is no hard and fast rule. It's all about your outlook of the market. I hope this helps.:)
     
    RayM likes this.
  5. Bruno

    Bruno Moderator Staff Member

    Ask a bunch of options traders a simple question and you'll get 10 complex answers... :)
    We all think in terms of Delta, Vega and Theta, so if you ask a question on Delta only (direction), no matter how convinced you are about it, there will always be so missing information to the options trader to answer it properly. Margin is an important factor also.
    You also need to ask yourself: what if I am wrong in my outlook? If used properly, options are the ultimate risk-reward "constructions", most of the times fairly forgiving when we get it wrong and still do OK with a dysfunctioning crystal ball :)
     
  6. Michael Cardoni

    Michael Cardoni New Member

    Michael Cardoni
    Tampa Fl
     

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