A Challenge For You...
- Thread starter magic423
- Start date
James:
You make an excellent point. At the same time, the market quantifies future expected behavior based on past behavior. Pricing is set by supply and demand, a reflection of how investors believe traders will behave in the future based on how they have behaved in the past. If they believe future traders will be bullish, they predict rising prices and trade accordingly... which in turn affects the price.
Ultimately, all the numbers associated with trading (pricing, the Greeks, volatility, etc.) reflect current behavior which is a prediction of future behavior. And unless you make trade decisions based upon an act of pure randomness, you use the numbers to predict future behavior.
My point is that a random and unexpected move can always occur, like a pro poker player confronted with a novice that plays a virtually dead hand (that should have been thrown away) and draws out on him late in the hand. Even in such situations, the pro knows that playing the odds will win in the long run, even if he occasionally loses high odds hands. My quest is to find those high odds hands, those positive expectation situations, even though I know I'll lose a few along the way.
If you are implying that the numbers have no value to the business, and I don't think you are saying that, then each trade is simply a roll of the dice or flip of the coin. The market is comprised of businesses that operate under the economic law of profit/loss expectation. If the pieces conform to that basic principle, so then must the whole.
You make an excellent point. At the same time, the market quantifies future expected behavior based on past behavior. Pricing is set by supply and demand, a reflection of how investors believe traders will behave in the future based on how they have behaved in the past. If they believe future traders will be bullish, they predict rising prices and trade accordingly... which in turn affects the price.
Ultimately, all the numbers associated with trading (pricing, the Greeks, volatility, etc.) reflect current behavior which is a prediction of future behavior. And unless you make trade decisions based upon an act of pure randomness, you use the numbers to predict future behavior.
My point is that a random and unexpected move can always occur, like a pro poker player confronted with a novice that plays a virtually dead hand (that should have been thrown away) and draws out on him late in the hand. Even in such situations, the pro knows that playing the odds will win in the long run, even if he occasionally loses high odds hands. My quest is to find those high odds hands, those positive expectation situations, even though I know I'll lose a few along the way.
If you are implying that the numbers have no value to the business, and I don't think you are saying that, then each trade is simply a roll of the dice or flip of the coin. The market is comprised of businesses that operate under the economic law of profit/loss expectation. If the pieces conform to that basic principle, so then must the whole.
traderlux:
I have posted an honest and legitimate problem for which I seek a possible solution. You're inability to address the problem is not justification for sarcasm. I have been direct and to the point, but I have treated each reply with respect. The tone of your post is offensive and unnecessary.
<i>...ok, you proved it, (with some bs software from tos). now what?
it has been "proven" humming birds cant fly, yet they are buzzing about my back yard.</i>
If you can't say something nice....
I have posted an honest and legitimate problem for which I seek a possible solution. You're inability to address the problem is not justification for sarcasm. I have been direct and to the point, but I have treated each reply with respect. The tone of your post is offensive and unnecessary.
<i>...ok, you proved it, (with some bs software from tos). now what?
it has been "proven" humming birds cant fly, yet they are buzzing about my back yard.</i>
If you can't say something nice....
...there is no "nice" in trading. i addressed your post directly, you proved it now what? did you even read my post? there is no sarcasm, and my "tone" is not offensive. i gave you good advise and also three sources to pursue.
dont waste your time on tos or other simulaters, just trade.
you are either scared and frozen, or scared and scattin'
re-read my post and look for the gems that are there:
""...ok, you proved it, (with some bs software from tos). now what?
it has been "proven" humming birds cant fly, yet they are buzzing about my back yard.
every thing in life is a derivative (option), (including you and me), we know how it ends, just not when, dont need no stinkn math proof.
while you are looking for your proof that it wont work, others are making money, (and more derivatives), play the game with joy while you can.
use your math skills for your own and societys enrichment, not some bogus proof of the end game.
read cottle (risk doctor) and look at sheridans videos.
as you are talking poker or craps, you might also check this out:
Susquehanna, the poker-friendly options trading firm""
your "problem" is neither "honest or legitimate". You're inability to see the wisdom in my post is not justification to blow it off as not "nice"
dont waste your time on tos or other simulaters, just trade.
you are either scared and frozen, or scared and scattin'
re-read my post and look for the gems that are there:
""...ok, you proved it, (with some bs software from tos). now what?
it has been "proven" humming birds cant fly, yet they are buzzing about my back yard.
every thing in life is a derivative (option), (including you and me), we know how it ends, just not when, dont need no stinkn math proof.
while you are looking for your proof that it wont work, others are making money, (and more derivatives), play the game with joy while you can.
use your math skills for your own and societys enrichment, not some bogus proof of the end game.
read cottle (risk doctor) and look at sheridans videos.
as you are talking poker or craps, you might also check this out:
Susquehanna, the poker-friendly options trading firm""
your "problem" is neither "honest or legitimate". You're inability to see the wisdom in my post is not justification to blow it off as not "nice"
Magic ... it sounds like you belong to the Chicago school of rational economics where all know information is already priced in and market participants behave rationally .... the opportunities frequently arise when the participants are behaving irrationally ... long may that continue .... James
Quote from magic423:
My math indicates they are and I'm truly hoping someone can meet the challenge and PROVE me wrong.
Successful tradiing isn't simply about math. There are other skills involved (timing, adjustments, money management, etc.). And who says your math has PROVEN you right? Oh, you did. Nebbermind.
I'll use a real life example of selling a SPY Iron Condor (using 2 pt spreads). The trade quote info comes from the Thinkorswim platform 6/12/10. Commission to enter trade: $11.80
Your commission schedule is ripping you a new one
Every credit spread or option position I evaluate produces a NEGATIVE expectation. And that means the position is a bad bet because it will lose money long term.
As someone else suggested, if the trade has a negative expectation, take the flip side.
The only way to make money long term is to engage in trades with a positive (not negative) expectation. If there are no option trades with a positive expectation (and I've yet to find one), how does one overcome the negative expectation and make a trade positive??
That definitely proves that no one makes money with options - other than brokers and market makers. Eh?
It is about gaining an edge (positive expectation) and then profiting from it.
Sorry, but it's also about timing, money management, adustments, etc. I could show you overnight earnings positions that lost money close to close but with the knowledge of how IV implodes in the AM, were very profitable if certain legs were closed out first in the AM (taking advantage of the disparate rate IV decay during the day). The expectancy didn't vary, only the management of the position. But I'm not going to because they're "one's personal trade experiences".
Adjusting only increases the negative expectation due to the increased cost of the adjustment. As I said, you still end up with a negative expectation... one even greater than had no adjustment been made.
Another errant conclusion. Adjustments can be made to lock in profits on one side, increase net premium received (rolling a spread in), buying more protection, all changing the risk profile of the position. Ans at a low commish broker, the commish is fairly irrelevant versus the premiums involved.
These trades do have an expectation around zero. Unfortunately, that is something even many pros do not understand because they don't understand mathematics.
In order to profit from an options trade, you have to guess right about something: either direction or volatility or the timing of a move. Guessing right about one or more of these things IS your edge, thin as it may be.
If you think about it, if there were trades with a positive expected value, nobody would take the other side.
In order to profit from an options trade, you have to guess right about something: either direction or volatility or the timing of a move. Guessing right about one or more of these things IS your edge, thin as it may be.
If you think about it, if there were trades with a positive expected value, nobody would take the other side.
Hi Magic
Sorry, but you don't
Where on earth did you get people know the right probabilities of an asset to be at a particular level
There are a lots of misconceptions about probabilities and deltas. Delta is not the probability an asset to reach a level. But this is widely written in books by people who have no clue about what there talking about. Delta is something that moves between 0 and 1 for a call, a probability something that moves between 0 and 1 too. Wait a minute, I get it : a delta is a probability.
Too bad it's not.
And if delta isn't a probability, all what you said is irrelevant.
As a matter of fact, one can't know the right probabilities and can't even know if they do really exist.
your first statement is "are options a bad bet long term" what do you mean by options, all options including asian, barrier, etc. Then you go on to give one example to prove your theorem. In short you can't take one trade as a proof. You may be correct but you are not at all PROVING your assertation. Your EV sounds an awful lot like expected value. That said you are at least thinking about the larger problem.