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ever hear of skew? if the market perceives/believes that the underlying has a greater risk of moving in one direction or the other the directional strikes will reflect that bias.

what has a chart got to do with probability? when i'm discussing probability i'm talking about the price of an option. at fair value, every possible outcome is priced into that option. you seem to use options as a directional bet on stocks. that's fine, i do it myself. but the disconnect i...

i suspect that taleb uses money management and a variety of interest bearing vehicles to size and pay for his options portfolio. still, if his method is as described in the article (i.e. he never sells premium) then for all his brain power, he still knows nothing about options. when he...

no i would not agree with this. i do not use the numbers to figure out where things are going. i use them to manage risk. at best, i make a bet and if i am right i devise a strategy to lock or leverage that good fortune. also there seems to be a disconnect in what your wrote. first you...

i use both methods depending on the volatility of the underlying. if IV is relatively stable or declining i prefer to short the straddle first. but in a rising IV environment or with just a highly volatile stock, i prefer to buy premium first. it's coincidental but i have used this...

if you have a decided opinion on a market, there are always ways to use the greeks to create the best reward/risk scenario if your prediction is right.

you're arguments are all very cogent and logical and i don't disagree or have a simple reply. but let me toss another thought (or half-thought) out. what if the intended position is ultimately the butterfly as riskarb has suggested. the position is legged over time by embracing an unknown but...

i don't know where you're pulling the vol numbers but let's say the numbers are accurate. it's still irrelevant because we are not quitting the game, we are managing a position and a portfolio. if we don't roll into the adjustment, the next trade we make will be back at a negative expectancy...

expectancy is completely quantifiable and empirically validated. every trade has zero expectancy at fair value with no commissions. where i will agree with you is that the only positive expectancy that i've found is in the individual trader.

look, i have never denied that inefficiencies occur. they undoubtedly occur and they are also undoubtedly short term phenomena that make devising a system for trading them a ticking time bomb. if inefficiencies did not exist there'd be no reason for the battalions of highly paid folks on...

IV/HV has nothing to do with it. it's the same as saying there's a good time to be betting red and a good time to be betting black in roulette. after the spin which color to have played is obvious. it's the same with IV. you can't know future volatility. after the fact you can say actual...

well there's the contradiction of this approach. maybe the only way i can explain or justify what i'm calling "converting negative expectancy into positive expectancy" is really a betting scheme. it may be some version of an anti-martingale which pyramids winning bets. the method then appears...

the math absolutely matters. your comment is like saying you don't need to understand the probabilities in craps because, when it's all said and done, if you can throw sevens 70% of the time you'll beat the house everytime you play. understanding how options work means that if i'm a market...

to me the simple answer is "when the new position has a net cost basis better than the identical trade created at current market prices." in my opinion, that is why it is always better to convert a winning trade into another position rather than close it for a profit. example: say riskarb's...

John, i'm up way too late alternating between a dvd of chappelle's show and this thread. i can't decide which is giving me more laughs. take care...

i would concede your point if studies could be found to support similar excess returns by put sellers (or for that matter any option strategy long or short). i'm not aware of any and i can't believe that after 20 years in this business i hadn't come across such claims. but what the heck, i...

i don't think anyone who holds that markets are efficient claims that inefficiencies do not creep in every once and a while. the basic point about zero-expectancy though is that the markets are close enough to efficient - so close that an average moe hasn't got the resources to ferret out...

but you have no way of knowing if there is a skew because some fund manager is protecting portfolio gains (and his job) or if some knowledgeable source is correctly detecting fundamental problems with the underlying and is correctly anticipating an impending sell-off. for all intents and...

i guess that's what makes markets in the first place. likewise, thanks for your participation in the dialogue.

how can you possibly know this? do you have some data that shows you've found the optimal stop-loss level (i.e. you've tested all your stop theories to see what would have happened and found that your stop produced a positive expectancy)? i can say with strong confidence that in fact you...