Futures vs. Options: Your Plan for the Pandemic

Futures and options have a lot of overlap — they are both leveraged vehicles with big rewards for speculators with good judgment. Is there any difference when trading futures or options in a pandemic portfolio? As with anything in investments, ask 5 people and get 5 answers. I do have a solid perspective, though, if for no other reason that I hate fake fence sitting articles on financial sites that are supposed to be smart.

I like futures in the COVID market. Here’s why.

Fairness

When you first learn options, you are taught that calls net you big money if the stock goes up, and puts win big if the stock goes down. After you make a few trades, you realize this is not always the case. Your Greeks might throw a screwdriver in the mix, widening the spread so you can’t get out at a profit. If your stock makes too big of a swing before slowly moving above your buy level, your call may have deteriorated too much to ever catch up.

I can’t tell you how many times I’ve been right on the direction of a low float option only to find I was 1 of maybe 3 people in the room, and they weren’t buying my overpriced winner. The pump eventually dumped, and I got left holding the bag.

Futures get rid of many of these issues. Liquidity is not a problem, so I’m never caught on the right side of a trade with no one to sell to. I also worry much less about insider trading. A skillful trader or a well timed PR stunt can manipulate a stock price. Futures trade as market aggregates, so you would need near total collusion in an industry to form a racket. You never know, but at least I feel like I’m playing in an efficient market.

Fast Rewards

I want to say that my trading has matured like a fine wine. It hasn’t. I’m still a gunslinger at times. I love the feeling of being really, really right, grabbing some outsized winnings and buying my partner something frivolous and decadent. If this is you, you stand a much better chance in futures than you do in options. Futures don’t gap the wrong way based on news you can’t respond to until 8:30.

A word of caution: Put in hard stop losses that you can’t override, and don’t trade with anything less than $25,000 in your account. If you go below this day trader minimum, you don’t give your trades the chance they deserve to become profitable without running into the possibility of a margin call. If you want fast money, take the time to set up the safeguards.

Keep in mind that your win percentage on these kinds of trades will probably be low if you heed your stops. You’re not looking for a 90% win rate. Your job is to be extremely right on 1 or 2 plays out of 10.

24/7 Markets

I hate the overnight lag of options trading. You really put yourself behind the eight ball when trading options in a volatile market. With stocks jumping all over the place, you risk huge gaps in your position if you hold anything overnight. If it goes your way, you’re happy. Very often, it won’t. And you won’t even be able to justify the reason why.

We’ve got the market rallying on days with more coronavirus deaths. Sometimes the semiconductor industry — which is built on U.S.-China relations — responds to Donald and Xi’s pissing contest, and sometimes it doesn’t. Who knows. I like being able to immediately respond when something happens, and you can only do this with futures, the 24/7 market.

If you’re going to trade futures, you need a platform that is dedicated to futures trading. There is overlap between futures and options, yes. But once you dig down into the guts of futures, you’ll find that a dedicated platform is preferable.

Ninjatrader is an award-winning futures brokerage with low margins and commissions. You need to come in with a basic knowledge of the market, but if you know what you’re doing, the feature set is hard to beat:

• Intuitive charts and interface to minimize input errors


• Access to every trading indicator you know and then some


• Integration with every industry standard 3rd party app


• Daily training and customer support


• 24-hour emergency trade desk (you’ll need it if you trade like me)

You get all of the features above with a simple pricing structure and a lifetime license. Trading futures is hard enough. You don’t need any more complexity with your broker. I personally like them because I know that every mistake I make with Ninjatrader is mine. I can’t say that for every broker (some of them seem to love getting in my way). Check out more on NinjaTrader here.