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Your situation is certainly bizarre, although I'm not saying that it didn't happen. For one thing, that vertical spread must have eaten up essentially all of the cash in your account. Rare is the option trader who commits all his capital in one trade like that.

Selling puts makes perfect sense if you really want to buy the underlying asset at the strike price. I'm willing to own AA at $9 and PBR at $25 so I sold the appropriate puts. I did this in small size because I am assuming the puts might actually get exercised. Needless to say this isn't...

I feel confident that the great majority of covered calls that were sold OTM for August or September will indeed expire worthless. A crash like we've just had doesn't recover in a week and probably not in a month.

This sort of suckage can happen in real life even though it's completely irrational. After all, if the short calls were exercised you'd immediately exercise your long calls and get out with a profit. Did you have other positions that were using up your margin? It would have to have been a...

You'll find that your ability to predict the future will decline drastically once you're using real money.

It's true that gold stocks have for the most part been one big disappointment. I think that this is because expectations for the gold stocks have changed. People used to buy gold stocks at silly high P/Es, like 40 or 50. Now people buy at P/Es of 16 to 30. If you just want leverage on the...

VIX options are not like other options. The underlying is a computed quantity (the VIX) not an asset that can be bought or sold. Market makers can not hedge with the VIX nor does put-call parity hold with respect to the VIX. So the usual pricing arguments do not hold. However, market...

All their covered calls are expiring worthless. They certainly did no worse than the long only investors who didn't sell covered calls.

Everybody knows this already. That is why gold is now above $1700. When people talk about the U.S. defaulting on its debt they don't really mean that it won't pay the principal and interest. They mean that you'll be paid in dollars that are worth a lot less than what was invested in the first...

Place your bets -- for how many trading days in a row will SPX continue to go down? My guess: 3 more.

That doesn't surprise me at all. We have seen this for several years now -- the more fucked up the American financial system, the higher treasury bonds go. So.. S&P downgrades U.S. debt ... causing everybody to panic sell out of the stock market... and put the cash into the usual "safe...

I agree that my initial statement was badly stated and misleading.

There isn't the slightest chance of "serious cuts". None.

Well, each sigma also defines a new expected value for the options, and guessing what the future volatility will be is not much easier than guessing mu. My point is this: People would not buy stocks unless they believed they will, over the long run, grow at faster than the risk free rate. If...

Here's a toy example that vividly demonstrates the difference between the no arbitrage and the expected prices of an option. To keep the math simple, I will assume a risk free rate of 0. <a href="http://www.yoyodyne.com/">Yoyodyne Corporation</a> (ticker YOYO) has a remarkable pricing...

I don't think my previous posts were sufficiently clear and that is probably the source of some of the contention. There are basically two ways to price a financial instrument: 1. Consider all future prices and their probabilities. Calculate the future expected price, then discount to...

Here's the funniest quote in that article: <i>Obama underscored that point. He said that, if enacted, the agreement would mean "the lowest level of domestic spending since Dwight Eisenhower was president" more than a half century ago.</i> I just laughed out loud when I read that.

Go back to basics. The position of the mean of that normal curve is vitally important in determining the price of puts and calls. After all, that's what it's all about -- are you above or below the strike price at expiration, and by how much? Common sense tells you that the higher mu is the...

Pathetic.

Bullshit. The Tea Party is fed up with the big spending in both parties. The one major criticism I have with most Tea Partiers is that they glom onto necons like Sarah Palin and Michelle Bachmann. They should be aware that wars cost mucho money and that real conservatives hate unnecessary...