{"id":13998,"date":"2011-09-02T12:18:36","date_gmt":"2011-09-02T16:18:36","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=13998"},"modified":"2023-08-03T23:13:46","modified_gmt":"2023-08-04T03:13:46","slug":"traders-ask-is-it-better-to-buy-options-for-swing-trading-profits-or-sell-options-for-time-decay","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/traders-ask-is-it-better-to-buy-options-for-swing-trading-profits-or-sell-options-for-time-decay","title":{"rendered":"Traders Ask: Is it better to buy options for swing trading profits, or sell options for time decay?"},"content":{"rendered":"

Trader Sam asks:<\/p>\n

“Dear Sir:<\/em><\/p>\n

Allow me to ask a question about options, as I am a new trader:
\n<\/em><\/p>\n

I have heard that delta neutral strategies are the best approach to trading options<\/a> but I have less than $6,000. in my trading account and my broker’s margin requirements make it impossible for me to trade iron condors, butterflies\u00a0 and other income strategies. So I feel that my only alternative is to buy options utilizing my directional opinion on a stock for a 3-5 day\u00a0 swing trade. Am I correct?
\n<\/em><\/p>\n

Sam,\u00a0 thanks for reaching out to us with your question. It’s\u00a0 a very good one.<\/p>\n

First of all there is no “best” way to trade options. Each method has its positive and negative implications.\u00a0\u00a0 One of the secrets\u00a0 to options trading<\/a> is to find the options strategy that best fits the situation and then use that strategy with skill. This comes from experience and a lot of hard work.<\/p>\n

Second, I think that you CAN trade delta neutral\u00a0 strategies with between $5,000-$6,000 in your trading account. In fact, I would not recommend your trading any more than that in your first year of trading delta neutral strategies, as they are full of nuances that you can learn only through experience. At SMB,\u00a0 our trainees normally start with a $5,000. trading account in which they trade, monthly, four or five separate income strategies including in most cases iron condors and butterflies.<\/p>\n

How do we do this? It’s not that complicated.\u00a0 First of all, calendar spreads and butterfly spreads do not eat up very much capital compared to iron condors and other “strangle” types of trades such as double diagonals. Our trainees normally set aside between $500 or $1,000 for these types of trades.\u00a0 So there is no reason you can’t get practice trading either of those strategies immediately. As for iron condors and double diagonals, they certainly are more capital intensive, but that problem can be resolved by selecting a lower cost vehicle to trade.<\/p>\n

For example, I just modeled a five-point\u00a0 strike-separation, 3-lot,\u00a0 SPY iron condor that you could theoretically trade in connection with\u00a0 this coming October expiration for $1,050 of margin vs. the equivalent trade in the $SPX index (a 3-lot, 50 point strike separation iron condor) for\u00a0 more than $10,000 in margin.\u00a0 Admittedly, the ratio of commissions to potential profit in the SPY condor\u00a0 is higher, but using the SPY to practice \u00a0 trading\u00a0 iron condors on the $SPX ultimately, when you are ready to trade a\u00a0 larger account,\u00a0 is an excellent idea.<\/p>\n

All of this is not to say that you can’t successfully\u00a0 buy calls and puts outright depending upon your directional opinion of a particular stock, ETF or index.\u00a0 However when you\u00a0 do so, time (and volatility) are your enemy whereas with delta neutral strategies, in which the trader is normally net short<\/strong> options,\u00a0 time is always your friend.\u00a0 As time passes,\u00a0 the\u00a0 price hurdle for you to make a profit on a long call or put gets higher. If volatility drops,\u00a0 matters\u00a0 gets worse.\u00a0 Having said that, properly traded long calls and puts can provide spectacular gains, but equally spectacular losses.\u00a0\u00a0 Most people who dabble in longs options struggle and ultimately give up.\u00a0 Delta neutral options trading, on the other hand, teaches you how to\u00a0 get the time decay built into options to work\u00a0 for you, not against you, month in and month out, without the necessity of a directional opinion.<\/p>\n

If I were you, I’d learn more about delta neutral strategies and continue your learning curve with those trades by using lower priced vehicles.<\/p>\n

Thanks for reaching out to us and best of luck in your options trading<\/a>!<\/p>\n

Seth Freudberg<\/p>\n

Director, SMB Options Training Program<\/p>\n

The SMB Options Training Program<\/a> is a program designed for novice and intermediate level options traders who are seeking an intensive training process to learn how to trade options spreads for monthly income. For more information on this program contact Seth Freudberg: sfreudberg@smbcap.com<\/a>.<\/em><\/p>\n

Risk Disclaimer<\/a><\/div>\n","protected":false},"excerpt":{"rendered":"

Trader Sam asks: “Dear Sir: Allow me to ask a question about options, as I am a new trader: I have heard that delta neutral strategies are the best approach to trading options but I have less than $6,000. in my trading account and my broker’s margin requirements make it impossible for me to trade iron condors, butterflies\u00a0 and other … Read More<\/a><\/p>\n","protected":false},"author":741,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,1402,1584],"tags":[1890,4694,4698,1598,1259],"class_list":["post-13998","post","type-post","status-publish","format-standard","hentry","category-general-comments-2","category-options-education","category-seth-freudbergs-blogs","tag-delta-neutral-options-strategies","tag-options-income-strategies","tag-options-mentoring","tag-options-strategies","tag-options-trading","no-post-thumbnail"],"yoast_head":"\nTraders Ask: Is it better to buy options for swing trading profits, or sell options for time decay? | SMB Training<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.smbtraining.com\/blog\/traders-ask-is-it-better-to-buy-options-for-swing-trading-profits-or-sell-options-for-time-decay\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Traders Ask: Is it better to buy options for swing trading profits, or sell options for time decay? | SMB Training\" \/>\n<meta property=\"og:description\" content=\"Trader Sam asks: “Dear Sir: Allow me to ask a question about options, as I am a new trader: I have heard that delta neutral strategies are the best approach to trading options but I have less than $6,000. in my trading account and my broker’s margin requirements make it impossible for me to trade iron condors, butterflies\u00a0 and other ... 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