mcjon3z

I've been reading up on verticals as a lower risk method of playing a directional bias than outright puts and calls. Most of the articles out there are written from the standpoint of "Stock XYZ is priced at X and I think it will be at or above Y at Z number of days in the future." They indicate to set the long arm ATM and are calculating profit targets based upon holding the options to (or very close to) maturity. This seems counterintuitive to me for a number of reasons: You are guessing at a landing spot within a fixed amount of time and calculating risk/reward based on that ATM deltas are lower than marginally OTM deltas, but the deltas then drop off as you get further OTM. If you are wrong on the direction straight off the bat, deltas will be increasing and losses will compound faster than going further OTM Vega increases as you go further ATM, which would serve as a cushion in the event of a price drop and corresponding volatility increase (albeit very small) Tail risk as you get close to expiration My thought is that in a purely directional play, you can buy cheaper spreads further OTM and set a stop/loss target based on premium paid at which point in time you re-evaluate and re-enter another trade. For example, if I think that QQQ has upside potential over the next 30 days and I want exposure to it: Buy spreads 2 months out with the intent of closing 1 month out (keeps your 30 day window and reduces tail risk) Choose OTM strikes at the point where deltas start decreasing so that upside movement increases price effect and downside movement decreases it Set target stop loss / gain points as a percentage of premium paid If you reach the 30 day window or your target stops, close the trade and re-evaluate; if it still looks good, re-enter at new strikes and expirations Lower prices = less total risk in the event of a meltdown that blows thru your stop loss point Higher delta further OTM = more potential return (or loss) on a dollar for dollar increase in the underlying, but we still have our stop losses and we have gone 1 month further out so that will lower the delta as compared to going 1 month out; overall delta on a 60 day OTM option will still be lower than a 30 day ATM option Please shoot as many holes as you can into my thinking!

I'm trying to wrap my head around comparing delta's on leveraged vs. non-leveraged ETF's (for example QQQ vs. TQQQ) in order to try to achieve a target delta on a non-leveraged version. Basically I want to duplicate a risk/reward profile on a spread in TQQQ using QQQ because of the vast liquidity difference between the 2. Let's say for simplicity's sake that QQQ is trading at $300 and TQQQ is trading at $150. If the Nasdaq goes up 1%, then theoretically QQQ should go up $3 (1%) and TQQQ should go up $4.5 (3%). So an option with delta of .1 in QQQ would have the same $ gain as a delta of .066 in TQQQ (3x leverage movement / 2 since the underlying security cost is half as much). Am I thinking about this correctly?

@Yowster, @skydragon - Thanks for the input. The fractional shares thing makes sense. I was also looking at Robinhood because of this. Seems like they have some hidden fees, particularly the $75 transfer out fee. I have to get clarification if this applies to cash transfers or only security transfers. We started him a savings account that he has been putting money in since he was 2 and we match his deposits. Plan to make him buy his first car with it (my parents did same for me). I may offer him the same match deal to put a little money in the market. My wife and I are both CPAs so teaching finance at an early age is a big deal to us. You can imagine what we see in our industry as far as the impact of financial ignorance.

If it were a real account, i'm not talking about any real money - stick $100 in it and let him see what it does. I wouldn't give him direct access without me present, just don't want him to see my other account balances in the UI which was my only concern about having it in the same brokerage with my real accounts. eTrade has paper accounts that can be accessed through the Power platform - i could just use that, but I think it would hold his interest better if it was actually real money in there.

With me working from home for the past couple of weeks and having my eTrade account up on my laptop with my 8-year old running around, the kid has taken an interest in the stock market. I guess he thinks the black screen with red and green numbers looks cool. He found the stocks app on his iPad and came in to show me that "he was on the stock market, too." I'm thinking this may be a good opportunity to get him to play with some trades on his own - buy some Disney or other companies that he is familiar with and watch what they do. Possibly either a real RobinHood account or a paper trading account through TOS. My hesitation with TOS is that, when I played around with it a couple years ago (without a TDA account), the signup process was cryptic and there was no option that I could find to reset your account credentials. My personal accounts are with eTrade and I don't know that it would be the best idea to co-mingle the 2 at the same broker since it is all going to be tied to the same online login credentials. Anybody done something like this with their kids and any observations or recommendations?