I spent a couple of years trading in Mini warrants before realising their limitations and switching to Options. Still building my skills in structuring those. But why I like them is that you can’t get stopped out before expiry on a long option (ok, its different with spreads trades, writing options etc) and that suits my analysis. It’s a critical issue for me. I’m best at projecting where the stock will end up on a short to medium term trade, say 2mths to 2years. I can take out an option for whatever period I need and currently have some 2year options in play, which I can write calls against along they way to recover some time premium.
Markets are inherently volatile and over a period of months you can get outliers where price will spike up or down and stop you out and then continue on trend as it was. So with say a 9 month Option I just have to be right close to expiry and can hold it right through no matter what happens, as long as the underlying trend doesn’t change. With Mini warrants and I assume cfd’s and even margin loans, you have to be right for the whole 9 months or you’ll get stopped out.
Time and time again using mini’s I’d be right on the stock but lose money because of stops. I know its against market convention and all experienced traders are trained to use stops, but I’ve formed a view through experience that using stops has a negative edge. I went looking for a system where I could trade without stops and Options gives me that. My current strategy is to buy long options close to the money and then once the stock get going set up diagonal spread trades (like a covered call) to recover some premium along the way and offset time decay. Time decay only really accelerates in the last three months so longer options you can hold ok. I also analyse the likely rate of increase of SP to ensure its likely to be greater than the time/volatility premium paid.
On another point you raise, note that I’m a lot stronger on price analysis than time. I have an understanding that time is really important, I’m just still a bit of a novice when it comes to analysing that. So take my comments on time as some basic thoughts but maybe not as proven or robust as other stuff.
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