What is the benefit of scalping options on short intraday time-frames rather than trading large equivalent stock positions?
What is the benefit of scalping options on short intraday time-frames rather than trading large equivalent stock positions?
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maverik · External communityPost link
External question — Personal Finance Stack Exchange
Author: maverik
Original post: https://money.stackexchange.com/questions/154262
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I see a lot of traders on fintwit (to name a few: @UmarAshraf and @RealNourAtta) using ITM or 40-60 delta OTM options to place quick day-trades on 1-5 min charts. They're out within seconds, minutes, to at the most an hour.
Because the holding period is so short, delta is the only greek that matters. These are single leg positions - no spreads, strangles etc.
If a trader takes a 5% position with 20% stop loss, he has 1% account equity at risk. This can also be accomplished by taking a full 100% position with a 1% stop loss. Most brokers in US allow up to 400% day-trading buying power by default, so leverage is not an issue.
What then is the benefit of using options? Is it just generating more leverage while keeping more buying power free?
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Bob Baerker · External communityPost link
External answer — Personal Finance Stack Exchange
Author: Bob Baerker
Original post: https://money.stackexchange.com/a/154264
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Unless trading something like the SPY, the disadvantages of options include possible illiquidity, wider spreads, higher commissions, reduced delta requires more options, and to a small degree, implied volatility contraction.
The benefits of long options reduced cost and leverage.
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Quoted from Forex.com.bd-Editorial External question — Personal Finance Stack Exchange Author: maverik Source score (net votes, not local likes): 0 Original post: https://money.stackexchange.com/questions/154262 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. I see a lot of traders on fintwit (to name a few: @UmarAshraf and @RealNourAtta) using ITM or 40-60 delta OTM options to place quick day-trades on 1-5 min charts. They're out within seconds, minutes, to at the most an hour. Because the holding period is so short, delta is the only greek that matters. These are single leg positions - no spreads, strangles etc. If a trader takes a 5% position with 20% stop loss, he has 1% account equity at risk. This can also be accomplished by taking a full 100% position with a 1% stop loss. Most brokers in US allow up to 400% day-trading buying power by default, so leverage is not an issue. What then is the benefit of using options? Is it just generating more leverage while keeping more buying power free?
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