Options 02 (Oct 09 - Dec 24)

[lithium]

That's why I didn't open a position today, because I don't know which leads which....

I delay the decision to tomorrow morning

[iam802]

err.. why not just look at futures and trade futures.

Don't bother with the correlation stuffs.

[lithium]

err...... somehow they are correlated right? I don't know.

[kennynah]

err.. why not just look at futures and trade futures.

Don't bother with the correlation stuffs.

i agree...no need to complicate the issue.... choose one and trade....

[lithium]

OK. let me paper trade for a while first. MHI futures trading hours are not much difference than the HSI cash market. I prefer to go the same direction as both of them.

[kennynah]

OK. let me paper trade for a while first. MHI futures trading hours are not much difference than the HSI cash market. I prefer to go the same direction as both of them.

i imagine that would be everyone's preference too

[iam802]

This one from Tan Kin Lian.

I disagree with his opinion to avoid 'options and derivatives'. And I believe most of his concerns are addressed by an anonymous post.

The key point to note, liquidity is one of the most important aspect of trading/investing. Without volume or liquidity, retail investors will always end up with a 'wide spread'.

The way to avoid it is to be selective about what you trade/invest. If we decide on trading/investing in a low liquidity instrument, we have to live with the risk that the decision is based on. Nothing more than that.


--
http://tankinlian.blogspot.com/2011/11/ ... ns_03.html

I do not like to invest in options. My reasons are:

The price of the option is decided by an expert who takes the other side of the trade. This expert is likely to fix a price that will give him a profit (after allowing for the future possible outcomes).

As the other party to this "bet", the retail investor is likely to make a loss.

It is possible for the option issuer to manipulate the price of the underlying shares to avoid making a loss.

For example, if the option pays out a large sum of money when the underlying share hits a certain price, the option issuer will buy or sell the underlying share to avoid hitting the strike price.

The cost of buying the manipulating the price of the underlying share will be lower than the payout on the option strike.

If a retail investor wishes to speculate, it is better to buy or sell the underlying share, rather than buy an option.

For long term investors, it is better to buy blue chip shares and keep for the long term to enjoy the dividends and the long term capital gain (and forget about short term fluctuation in the share price).

Lesson: Do not invest in options or other derivatives. Buy or sell the underlying share. Speculating in futures is all right, as the price is a direct reflection of the underlying share index.

'Anonymous' comment rebuking the key points:

Anonymous said...

The problem herein lies the the simple mentality of retail investors, especially here in Singapore, where they only know how to "BUY" a financial instrument (ie blue chips shares, unit trust, etfs, etc).

With options and futures, you can can go both ways. You can initiate a SHORT (SELL) position and close out your position later with a LONG (BUY).

If you just know how to BUY options, of course you will lose money because 3/4 of all options expires out of the money. Options writers are like your Singapore Pools and options buyers are like your punters. There will be only 1 first prize.

If you are properly train and educate yourself with the necessary knowledge, you should be able to write option like the market makers. and contrary to most misguided belief that writing otpions has "unlimited" risk, it is less risky than buy a stock outright.

The options professional preys in ignorant and lazt investors who dont want to spend time and effort learning.

Like Singapore Pools, they hope as many people buy options from them as possible. On the expiration day, the price of the underlying can only be at one place.

If you have bought an option, there are only 3 probable outcomes: it expires In The Money (you gain the difference), it expires Out Of the Money (you lose your premium paid) or it expires AT The Money (you also lose the premium paid).

Your chance of winning is 1 out of 3 events.

As for the option writer, his odds is 2 out of 3, since he will pocket all the premium for options that expires Out Of the Money and At The Money.

Its the same principle here as insurance underwriter.

So, in a nutshell, if you want to trade options as a retail investors, do what the professionals do. But first, go educate yourself with the necessary tools and knowledge, which requires time and effort.

Otherwise, just join the queue at your nearest Singapore Pools outlet or go open a stock trading account and "BUY" yourself some hope. You may get lucky on a few occasions over the next10 to 20 years.

[sesdaqfan]

Not too sure why the anonymous wrote that writing options is less risky. As a naked option, whether writing call or put, it does have its risk in volatile times.

[iam802]

Good point on naked options.

I suspect, that the 'anonymous' may not be writing straight call/put options. It could be a spread. Or he could be day trader and the timeframe is only the around 3 hours max and he will be out. With a smaller timeframe, it is much easier to control the risk as there is no overnight position to worry about.

Personally, I seldom sell naked option; mostly spread. And that is how I think help to reduce the risk when compared to naked.

I still buy naked CALL/PUTS. Eg. I currently have PUT on RIMM with a plan to close off the position before end Nov.

[sesdaqfan]

Good point on naked options.

I suspect, that the 'anonymous' may not be writing straight call/put options. It could be a spread. Or he could be day trader and the timeframe is only the around 3 hours max and he will be out. With a smaller timeframe, it is much easier to control the risk as there is no overnight position to worry about.

Personally, I seldom sell naked option; mostly spread. And that is how I think help to reduce the risk when compared to naked.

I still buy naked CALL/PUTS. Eg. I currently have PUT on RIMM with a plan to close off the position before end Nov.

agree