by Gavin M.
The reality is, majority of options traders in this market are clueless on how to effectively use options as a trading tool. Most even do not know how to properly use the option Greeks. I find this absolutely hilarious considering they put their hard-earned money on the line.
For retail traders like myself, I do not have the unlimited funds given to investment banks like Goldman. So I have to make do with the funds I have and efficiently deploy them to the best of my abilities. I am aware that the options market is extremely rigged to favor the market makers instead of the options traders. In addition, there is an overwhelming belief out there that you should only ever sell options not buy them. While that is quite true, what people also do not consider is the fact that you can get assigned before expiry.
I have been in instances where I have been called away before the Friday / Saturday expiry. It is quite ludicrous considering the terms of contract state that you can only be called away when your option is ITM at expiry. However, these are the markets we trade in and sometimes rules get implemented in the craziest ways.
What also is not available to retail traders is the fact that we can not always sell options due to margin requirements and account constraints. If you are a cash account holder, you are forbidden from selling options. If you want to sell options, you have to have a margin account and then you set yourself up for the Pattern Day Trader regulations.
So in reality, when you are an options trader with less than $25,000 in your account, your choices are quite limited in the stock market. You either trade the shares or trade the options carefully. Most of the time, retail traders are stuck buying options. There is absolutely nothing wrong with buying options even if the market is rigged to profit the market makers. You just need to trade the options carefully within the prescribed period of validity.
Take for example what our clients did today. I shorted UVXY yesterday, Thursday, at $11 and I covered today, Friday, at $10 netting $1/share in profit. The clients who did not have the buying powder, followed the trade via UVXY $11 Puts. They picked it up for 30 cents per contract. This rose to $1.20 overnight. If you bought 50 contracts for $1,500, you would have made $2,500 overnight.
In the end, as with everything in this world, options are not fair. The game is not fair. However, the game is playable and you can beat the cheating market makers if you are prepared.
Traders from Equity Sense will be writing on this blog on positions and other market-related things.