Monday, March 5, 2012

Day Trading and Options

I am a fan of Day Trading. At various times in my trading career I have day traded as my primary means of income... paying for the groceries, the mortgage and the lease on the Por..... errr, I mean the Toyota.

To quote Ernie Chan from his 'QuantitativeTrading' blog:
Which brings me to day-trading. In the popular press, day-trading has been given a bad-name. Everyone seems to think that those people who sit in sordid offices buying and selling stocks every minute and never holding over-night positions are no better than gamblers. And we all know how gamblers end up, right? Let me tell you a little secret: in my years working for hedge funds and prop-trading groups in investment banks, I have seen all kinds of trading strategies. In 100% of the cases, traders who have achieved spectacularly high Sharpe ratio (like 6 or higher), with minimal drawdown, are day-traders.
I'm also a fan of options for a number of reasons; they are my vehicle of choice for trading and augmenting my long term stock holdings.

So what about combining day trading and options? Buying puts and calls in place of stocks or CFDs?

Ummmmm..... no.

I had and interesting exchange with a cretin from Australia by the name of Bill Stacy, who sells a course to ostensibly noooobie traders purportedly training them to earn "a few grand a week" day trading options on the Australian Stock Exchange with a $20,000 bank.

Questioned about the size of delta and contest risk with what he was teaching, the conversation deteriorated into one of those comedic threads you find on internet fora with name calling and the whole shebang. Well, it was amusing until Bill hightailed it off into the sunset.

So over the next few posts I want to have a look at day trading options, whether it's a good idea or not.

41 comments:

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