Replies to post #29003 on ETF SWING & DAY TRADING

[shortterm]

cad92648,

That strategy has some disadvantages:

- the capital required is much higher than straight forward spreads
- you need to factor the cost of commissions which will hurt the returns unless you use an ultra cheap broker like Interactive Brokers
- there is an inherent bias in assuming that the underlying stock will not fall, say, by 30%. If this happens, you have lot of work to do to regain capital loss through option commissions. What if a long term downtrend sets in?

I'm not saying that it is not workable but it is not as risk free or simple as you state. The underlying probably should not pay dividends in order to avoid getting called in situations where you are short calls in the money.

[Duma]

cad * Wow that was some response. I printed it out and want to spend some time reviewing it. I have also read the dialog between you and shortterm.

My first impression is that it seems more complicated, but that could be wrong. I hold a base of SPY stock, that could be good to work against. Need to play around with numbers. I just switched from Brown to IB (made my first trade this week), so for me also, the trading cost issue has gone away.

Back to your original proposal, I had the thought that if the trade moves against me such that I felt uncomfortable with the future, I could close out the current trade and open another trade for either the same expiration month or even the next if necessary to get the spread I need. In the case of the trade you suggested, the initial credit was $.80. If the spread reached 1.60 (2x), close it (for a .80 loss) and put on a new one for .80 or more. Next result is that for the one or two months the net gain is zero.

Thanks for getting my brain going again on options,
Jon

[CaribbeanJim]

CAD - From your experience, have you ever found the QQQQ Put/Call Open Interest charts as tradeable information? Also, can it be used as contrarian, e.g. more red than blue?



I asked a similar question of you a while back, but I don't my question was answered.