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IV, I have mixed strategies, so I want to get a simple measure for the overall performance. Let me rephrase my questions. Perhaps I can get a better answer. What is a good average gain per contract (an average after long term) for 1. for CTM spreads 2. for FOTM spreads 3...

segv, Yes, those successful naked writers got the "statistical" edge by random. They didn't know. I as a so-called scientist tried to explain why they have an edge. Evolution theory tells me that those survived get their edges by random. They didn't create or develop the edges themselves...

No. The statistical edge works only if you survive long enough. Blowing up means "one shot". You can't survive long enough to find your "statistical" edge. P.S. My discussion on the probability doesn't mean my endorsement of naked writings without any exit strategy. [edit] You really...

TS, I believe most successful traders don't realize that they are successful because they have a "statistical" edge, and they thought it is a "perceived" edge. For example, a "successful" naked writer consistently makes money for over 20 years. Why? Because they sell the "overvalued"...

If it is pure brownian, it doesn't matter, but in fact it is not. My gut feeling is that the fat tail effect on a daily basis is larger than the monthly. The reasoning is simply the law of large number. Thats why when we apply probability (or statistics) in option trading, it is better to...

ugly, How did you generate the graph? Did you look at the daily difference, monthly or annual? I suspect these three graphs (using daily, monthly or annual difference) might be very different.

Sorry i didn't make my point clear. For example, What is the right price for a book? suppose everyone thinks the price of a book = 0001*no_of_pages*cost_of_paper_per_ton If I buy a book now and want to sell it for a profit in the future, I am betting on the cost_of_paper_per_ton to...

Jeff, What is a better metric in your opinion?

You are right. In your example, I will say $23.75 profit per contract. My calculation is very simple. For example, I have traded (opened and closed) 1000 contracts this year, and I made $10,000 after commission charge. My average profit per contract is $10. I might have some winning...

What is the right price? When everyone thinks it is x, the price will be x forever with very little change because of the arbitrage. Everyone will jump in to buy it when it is a lot below x, and to sell it when it is a lot above x. Same thing happens to option pricing. Since everyone...

I agree with you in Hull's textbook. John Hull text was the one that I started before seriously trading options. If you read Hull's book carefully, you'll realize that he started with the markov process, and if one really solves it using the geometric Brownian motion, u should be the mean...

I understand the dynamic replication, and so risk-neural valuation process, and it should use risk-free interest if deriving from this perspective. However if you assume a pure brownian process, you should use the mean return if solved from this perspective. In reality, we use the standard...

Do you have a per contract measure?

Ugly and others: I like to throw another idea to see if anyone has an answer for me. BS model is based on risk-neural valuation, and so it uses the risk-free interest as u. From Brownian process, u is the average rate of return. If you solve the stochastic process, you should use the...

Phil, I totally agree with you.

Lloyd, I used to work on Artificial Intelligence. More specific, mainly on artifical neural networks, genetic algorithms and fuzzy control. 10 years ago, a graduate came back to our school to recruit and told me that the neural network algorithm we developed worked well for currency...

I had similar idea in the past, and asked Riskarb if there were any combo that will have positive expectancy, and the answer was "No". In fact, I used +dgamma and RA corrected me with the proper term "long wings". Ugly, Thanks for your post. It put our focus back to learning better...

I did a simple analysis for all my option trading for this year. My average profit for each contract is around $10. I am a spread trader. Since $10 a contract = 0.1 for each share and 0.1 is usually the bid ask spread. If I paid an extra 0.1 for each share I traded, I would have lost...

As a newbie, I don't think we have enough info for making any trading decision based on the statistical distribution. How are options priced? It never prices on hv. If it is priced based on statistical volatility, then obviously the atm is underpriced. However most of the time, IV is...

Hi everyone, Did anyone use the average profit per contract as a measure of his performance? I used all my past history and did the analysis. I made a little bit less than $10 per contract. It means if I paid an extra of 10 cents for each contract, I would have lost money. The data...