The federal reserve bank is not going long SP500 stocks...
A New Options Trader's Worry
- Thread starter ironchef
- Start date
Impressive especially it was after two major downturns. I assumed the performances were net of fees. I need to do better otherwise why not just hand the money over to them.
To be sure, their aggressive strategy had, what, smith like 75% drawdown in 2008. And then arnd 45% in 2011. That's what you need to think about before heading your money over, I imagine.
correct and what?
you don't have the capital, tools and know-how to act like an insurance company. every insurance co. and every guy on the floor has the knowledge and ability to re-insure himself.
that is reality.
The question is not which strategy, but as Lawrence pointed out, what is your opinion on the UL? If you don't have a way to predict movement (or lack of movement, depending on your strategy) that provides you with an expected value (EV) >0, your options trades (over the long haul) will make approximately zero. So here is what you need to do:
1. Make sure you understand what EV is.
2. Figure out some way to lasso volatility or direction that gives you a result superior to chance.
3. Figure out which options technique will duplicate it (there are usually several).
The EV of most options trades (put on without regard to opinion about the UL) is zero. You don't need to take my word on this. Find a calculator or graphic application that gives you the EV. Maybe Think or Swim or Ameritrade or whatever they are now has something like this, I don't know. There's a site called Samoa Sky that lets you download a program that does this, and something else from a guy named Hoadley, which I think you have to pay for. In any case, prove it to yourself that when you have no edge, EV is zero. Otherwise you will do what a lot of people on this site do: a long stream of profitable income trades, followed by a huge loser that subtracts everything you already made.
1. Make sure you understand what EV is.
2. Figure out some way to lasso volatility or direction that gives you a result superior to chance.
3. Figure out which options technique will duplicate it (there are usually several).
The EV of most options trades (put on without regard to opinion about the UL) is zero. You don't need to take my word on this. Find a calculator or graphic application that gives you the EV. Maybe Think or Swim or Ameritrade or whatever they are now has something like this, I don't know. There's a site called Samoa Sky that lets you download a program that does this, and something else from a guy named Hoadley, which I think you have to pay for. In any case, prove it to yourself that when you have no edge, EV is zero. Otherwise you will do what a lot of people on this site do: a long stream of profitable income trades, followed by a huge loser that subtracts everything you already made.
If you're very good at predicting movement...you can just buy outright calls and/or puts...for weeklies and make money hand over fist.
Thanks for yours and Lawrence's advice.
What you said is true, at least for me.
I did buy-writes when I started back in 2013 (and even recently), dumb and happy collecting premiums but I gave most back eventually, and made less than holding the underlying.Recently, I set up in Excel the BSM formula to calculate EV on trades and confirmed what you said here. I also did some back testing using mechanical trades and found the profits to be underwhelming.
I read quite a few books, finance papers and thanks to advises from here, I am developing my view of the expected movements of my underlying (after all I own many of them for years) and am now designing my trades around that.
Thank you.
Sounds so easy.If you're very good at predicting movement...you can just buy outright calls and/or puts...for weeklies and make money hand over fist.
Actually I found my profitable trades were all long calls.
But it is not due to superior insights, just that in 2013, 2014 even a monkey could make money by going long.
2015 and this year were very different, simply going long did not work.
I need to find a smarter way.Regards,