Obviously, buy options and wait, when will the BA trend start, in a situation, when time is running against your position, not optimal solution. It makes more sense to buy options after that, how an upward or downward movement in a futures has already begun, and not before the start of this movement</b>. It is very important for you, for an increase or decrease in the BA price to occur as soon as possible, the faster the futures price moves in your direction, the more you earn on the purchased option.
I repeat again - time is against us.
Position creation
Option type
Understandably, what, depending on, we want to make money by increasing or decreasing BA, the appropriate market position is selected:
1. Long (aimed at market growth) – Long Call
2. short (aimed at reducing the market) – Long Put
But now I would like to focus on something else.
As a matter of fact, these positions look the same and there is no difference between buying Call or Put. Just mirrored from each other.
In fact, these are two different strategies..
Let's compare them in terms of their effectiveness in the real market.:
1. As we have already noted, fast upward movement of the market is extremely important for both strategies (for Call) and down (for Put).
There is a so-called asymmetric stock market dynamics. Market growth is usually smoother and relatively slow., and the decline, usually, very harsh.
Let's turn our attention to schedule RTS index throughout its history. What do we see?
Notice, the entire stock market growth with 2005 by summer 2008 of the year (3,5 of the year) destroyed the market crash in just 6 recent months 2008 of the year. Positive dynamics of the index from the middle 2010 in the middle 2011 year was offset by a similar decline in literally just 3 months.
By virtue of that, what decline, usually faster, than growth buying a Put option may be (I emphasize) more efficient than buying a Call.
But that's not the main reason!
2. For both strategies, the decrease in market volatility works against the position., because. Call and Put premiums in the market are getting cheaper in this case.
Let's go back to our RTS Index chart.
By analyzing both graphs, can be seen, that with a decrease in the stock market volatility, usually, growing (which is understandable, falling more quickly), and with growth, it usually decreases. Of course, this does not always happen., but often enough. What does this mean for us?
Buying option Call, we make money on the growth of BA, but lower volatility, which usually accompanies the growth of the instrument, works against our position.
Buying a Put option, we have the opposite picture. We make money on the market decline, and the resulting general increase in market volatility helps us to get even more profits.
In this way, buying a Put option is a more effective strategy, than buying a Call option, as due to a faster market decline, and due to the influence of market volatility on our position.
