Directional Options Trading and Strategy Discussion at CBOE RMC

One of the final presentations of this year’s CBOE RMC discussed Directional Options Trading and Strategy – How to Effectively Manage a Directional Options Portfolio.  Ilya Feygin, Managing Director / Senior Strategist from WallachBeth Capital LLC and Michael Khouw Chief Strategist from Tradelegs and President of Optimize Advisors shared the presentation dutes.

Feygin began listing five things to focus on with directional option trading –

  1. Asymmetric directional exposure
  2. Risk reduction of direction position through hedging or payoff configuration
  3. Leverage
  4. Stock replacement
  5. Enhancing income using theta and vega

He noted that option payoffs give better risk reward dynamics than long or short positions in the underlying market.  An interesting trading method discussed was pair trading similar markets with options.  He noted that a trader could sell a put on a stronger stock or market sector and purchase a put on the weaker of the two.  A final area of trading that I found particularly interesting was he mentioned using VIX or VXX exposure to diversify since elevated index volatility has been a good trade as of late.

Khouw begin noting the huge potential benefits of options, but also pointing out there are challenges behind using options.  He discussed interpreting the outlook relative to option pricing is not necessarily as easy as many market participants believe.  He used Disney stock with respect to earnings trades as a teaching example.  The trade he demonstrated actually was placed weeks in advance of earnings.  This is not normally what people think of with respect to an earnings trade.