I am paper trading Options on US ETFs on Interactive Brokers platform. I am an Options newbie and my aim is to trade long Calls or long Puts instead of the underlying ETFs. I have chosen very liquid set of ETFs to trade. I intend to paper trade till I am comfortable with it and actually understand the nuances of trading Options, especially the "not so apparent" risk factors that can bite unexpectedly.
The holding period of my trading system (EOD) is 2-10 days, though some (very few) trades can go upto a month or longer.
I would like help on the following:
AA My initial thoughts are to buy ITM Calls/Puts expiring 2 months from now. Is it the way to go.
BB Mechanics of deciding on the moneyness of the chosen Options and which option levels to go for, i.e. how far in the future and how deep in the money.
CC I am studying the effect of Delta in deciding on the Options to trade. I note that Delta for longer term ITM options is lower than the shorter term options. Thus, the longer term options will be less profitable for the same favourable move in the underlying ETF. What is the downside to trading shorter term Options. I understand that time decay will erode the value for very short-term options.
DD How important is OI in decision making.
EE Are there any other factors that I should be looking at or be wary of.
Will appreciate comments from the experienced Options traders on the forum.