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Even if we did, which we never will, why would we give away our secrets to winning options trades? One of my favorite methods of making money with options is buying calls. This basically applies to all put options that are far OTM.
Buying far out-of-the-money puts that are inflated due to high IV is a recipe for losing all of your money. Although the price of far OTM options may rise temporarily, the probability is still mathematically higher that they will ultimately expire worthless. Hence, I mostly look to purchase the ATM calls. I like ES futures more because they trade throughout the night; I can close out my position anytime.
And because I initiated this trade on Thursday and planned to hold it into expiration on Friday, I wanted to be able to close the whole thing out in case the market moved against me overnight. SPY options stop trading 15 minutes after the market closes.
Merrill Lynch, Goldman, etc. In terms of timing, the time left until expiration was 1 day for this trade. This was highly risky.
Having said that, the cards were in my favor. It took a few minutes to get filled on my order, but my net position was 30 contracts. This is a very important distinction between futures options and stock options. ES futures trade at a multiple of 50, not Furthermore, 1 ES futures contract correlates to 1 ES futures options contract. For stocks, 1 options contract equates to shares.
This is not the case for futures options. The other thing to watch out for with futures options are the damn fees. It is paramount to always look for ways to reduce your fees. Call you options broker and ask to negotiate commissions based on your trading activity. Do whatever you can, because in the long-run paying high fees will hurt your account. All closing trades, including futures options trades, are free at tastyworks.
As we have talked about in some of the options strategy articles, the markets for in-the-money options, especially at expiration, can be horrible. This was the case for my lot of calls. Although I was trying to close out the position with 2 hours left until expiration on Friday, nobody was hitting my ask.
However, this was not the case! Instead of placing a limit order to sell the in-the-money calls, I place a limit order to sell the underlying asset. I locked in my profits and got the true intrinsic value of the calls, which I am glad I did. Shortly after I sold the ES futures, the market sold-off. Had I not closed out my position by hedging, the minor sell-off would have cost me thousands because this position was so highly leveraged at expiration.
The point of sharing this trade is to educate and hopefully inspire any current and aspiring options traders. It is possible to make money buying options, just like it is possible to make money selling options. There is a time and a place for both strategies. Having said that, the key to this winning trade was knowing the specifics of ES futures options and options in general, i. Also, if you took nothing else away from this article, know this: At The Options Bro, we try to be as candid as possible and share stories of trades that will be helpful to our readers.
Options Bro March 23, My outlook for the trade matched the time until expiration. The Problem with Expiring ITM Options As we have talked about in some of the options strategy articles, the markets for in-the-money options, especially at expiration, can be horrible. How I closed the Calls Like a True Trader Instead of placing a limit order to sell the in-the-money calls, I place a limit order to sell the underlying asset. Lessons Learned There are a couple key takeaways from this trade: When the time is right, take your profits and run!