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You are here: Home / Options / Commentary / How To Trade Options – Part 5: Comparison Strategies (Gain)

How To Trade Options – Part 5: Comparison Strategies (Gain)

July 17, 2013 by Michael Kopera

In the first comparative look at our model trades from late Jul 2011 the data proved that an options trade would have yielded better results than the SPY stock on its own. Now we’ll look at the 2nd, and this time a winning trade, to see how using options would have compared to using the underlying SPY stock. This trade entered on Sep. 22, 2011 and exited 3 days later on Sep. 27, 2011.

Pt5-chart1

The results from using Oct. 2011 monthly options are shown below (no commissions/slippage):

Pt5-Table1

These results once again reflect using 1 option contract as a replacement for 100 shares of SPY. The long calls/short puts made about 50% of what the SPY trade made. This was a good scenario for long calls, a relatively sharp move in a short period of time. The short puts managed to keep pace and would have outperformed the long calls if the move had taken longer and/or the implied volatility had gone down significantly. The bull spreads didn’t do so well, this just emphasizes that they are slower in developing profits.

Pt5-Table2

We now see what happens if the market exposure is increased to that of the SPY trade. The long calls have done very nicely, coming close to the SPY performance. The short puts have done even better than the calls or SPY, something to be hoped for considering their considerable amount of extra risk (remember how they fared in the first trade). Once again, the bull spreads end up roughly equivalent to SPY, in between long calls and short puts.

So far the options have looked pretty good compared to SPY, but both of these trades should have favored options.

For the next and last trade we will be analyzing one that was break-even for SPY. In the final installment to our options trading series, we’ll see how using options would have worked out once again and wrap up the topics we have covered so far throughout the course of this options primer.

Click here to read How to Trade Options – Part 1: An Introduction

Click here to read How to Trade Options – Part 2: The Greeks

Click here to read How to Trade Options – Part 3: Basic Strategies

Click here to read How To Trade Options – Part 4: Comparison Strategies (Loss)

Click here to read How To Trade Options – Part 6: Comparison Strategies (Break-Even)

Filed Under: Commentary, Education, Options, Recent Tagged With: options strategy, Options trading, Trading Lessons, trading options

About Michael Kopera

Michael Kopera started trading as an options market maker on the American Stock Exchange in 1988, one of many games players (bridge in his case) recruited because of their awareness of risk/reward and the ability to remain under control in any situation. After completing the terms of his original contract he continued as an options market maker until 2004 in his own one-man firm. Since then he has continued to trade his own account off-floor using equities, futures, and options, as well as managing a prop trading account.

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