Bear Call spreads

Quote from Neutral:

Thanks for taking the time. I appreciate it. By "taking the other side" , I mean doing the opposite of the credit spread. For example, instead of placing a bear call spread, placing a bull call spread. I think that involves switching what's sold and what's bought, right? Or whatever the "proper" opposite of the strategy is. I am assuming that an "opposite" strategy exists. If it doesn't, that's also interesting to know. What I would like to know is the following: if an experienced trader says something like "bear call spreads in the XYZ market is a terrible idea, the risk is not worth it", does it mean the reverse of that is a good idea? And if not, why not, given that options are supposed to be a zero-sum game (I think)? I hope my question(s) are clear enough. I have a thing for parentheses. :p
More...

Ok, now you’ve have made your question more clear, but still I’m not sure what you mean by opposite of credit spread, because opposite of credit spread is a debit spread, and regardless which you decide to do, they have the same risk profile.

Then you begin to write about bear call spread versus bull cal spread, and these two spreads have opposite risk profiles, so it gets bit confusing. Here is clarification for you (I’ll stick to calls to keep it simple);

“Bear Spread” is when you short call vertical spread.

“Bull Spread” is when you’re long call vertical spread.

Both spreads have opposite risk profiles. If you do one instead of the other, you’re switching your market views. Therefore your technical analysis of the underlying will determine what you anticipate that the underlying will do, and then you design your option strategy on what you anticipate.

You can do the same strategies with puts, but I won’t confuse any further. Best thing for you is to start plotting them on risk profile graph so you can see it.

By the way it is not always good idea to do what experienced trader tells you to do. Especially with options you must have firm understanding of what you’re getting yourself into because options are very deceptive. You must understand not only the risk profile, but also how the spread will behave during the time you’ll have it on.
 
In my previous post I was referring equities options on USA makets, not FX options. FX options are pain in the butt, don’t bother with them, stick with equities/index options.

If you liketo trade Forex, then trade Forex directly, it trends nicely, it is very liquid which saves you from worries in gaps (apart from weekends), don’t make trading for yourself any more difficult then it needs to be.


Quote from Neutral:

Let me elaborate why I posted on this thread after all. When Insurinator wrote "My experience with forex options is that they offer you a poor premium for a strike in the range of 125 - 175 points away from the current value. Anything beyond 175 points away and you will make no money at all.", I thought, "well, if options premiums are too low for the typical moves in practice, then buying those same options should be a great deal". Again, my question is, assuming Insurinator is correct, is my line of thinking flawed? And if so, why? Knowing those answers will help me (and presumably other novices) build some intuition about the general principles. I know options can be tricky, so I am hoping the experienced hands can shed some light.

Thinking a bit more, perhaps Insurinator meant that no money can be made AND lost. In other words maybe FX options market is too efficient to reliably make (or lose) money with sensible strategies that work elsewhere. I assume that in a perfectly efficient options market nobody but the market maker and the broker can earn money from options.
More...
 
Quote from Neutral:

I thought, "well, if options premiums are too low for the typical moves in practice, then buying those same options should be a great deal". Again, my question is, assuming Insurinator is correct, is my line of thinking flawed? And if so, why?
More...

Nobody is going to give you free meal in the markets, most arbitrages don't last too long. There is reason why it is low :)

Trade FX directly, or if you are attracted to options then go to stock options markets.
 
If I understand you correctly, you agree that Insurinator's complaint isn't about FX vertical spreads being terrible deals per se. It's just that they are so fairly priced that one cannot profit from them. In other words, there aren't such horrible strategies that by simply reversing them they become long-term winners. As far as the free meal, I worry not about its price, but what it's laced with! ;-)
Thanks for your replies.

Quote from Mr.Consistent:
Nobody is going to give you free meal in the markets, most arbitrages don't last too long. There is reason why it is low :)
More...
 
Like I mentioned in one of my previous posts, I was referring to options on stocks, I don’t have a platform with quotes for FX options. I do have experience with stock options but not direct experience with FX options.

You were asking about opposite sides of Bear Call spreads, so I explained that to you. But I don’t have a platform with FX options quotes so I cannot make a comment on Insurinator’ posts. But if you do read his post again he is complaining about terrible deals, but you just keep on thinking that you’ve come up with a strategy that would profit from mispricing :)

For example in equities options market makers have software which scans for mispricing, and the market maker will profit from any mispricing so the retail customer doesn’t have much of a chance to profit from any consistent mispricing. I do believe that in FX you wouldn’t be able to make money on the principal you’re describing. In FX huge banks will surely have the brainpower to scoop up any inefficient mispricing. :)
 
Quote from Mr.Consistent:

but you just keep on thinking that you’ve come up with a strategy that would profit from mispricing :)
More...

Oh no, that wasn't what I implied at all. What I wanted to know is a way to interpret the comments or experiences of other traders. I expressed no particular interest in FX, or suggested that I found a way to be cleverer than the banks. Just the opposite. Since my intuition is that free lunches are poisoned, I wanted to have a way of translating what a "terrible deal" means. It's confusing because if a strategy is consistently horrible, there must be a way to reverse it to come up with a winning, if not a wonderful one (which would have the same kinds of ups and downs and fluctuations as the losing one, but would come ahead). My current interpretation of "a terrible deal" is "too much risk and heartache for too little net return in the long run", or "no return at all".

So, in the absence of an "edge", a terrible strategy is not one that loses money on average. It's either:
1) Makes no money; just spins its wheels and wastes your time.
2) The only way it makes money is by creating fluctuations in your equity. If you are lucky you win first, and then have the good sense to quit. If you are not lucky you lose your capital right away, and then quit.

OK. I think that is what is implied if options are always priced correctly. Of course I don't really know if options are priced all that rationally or with self-consistency, especially when it involves the edges of the price distributions. I hope they are not.
 
The main problem with FX options that a retail trader would trade with one of those FX dealers (Oanda, FXCM and the like) is that they have the pricing power since they take the other side of each of your trades. In other words, the pricing is way too much against you.
 
Quote from MathAndLogic:

Try FX binary options.
More...

Hi MathAndLogic,
Could you briefly explain what advantage a binary option presents over vertical spreads? Is it simplicity? Can they be synthesized from ordinary options?
 
Quote from Neutral:

Hi MathAndLogic,
Could you briefly explain what advantage a binary option presents over vertical spreads? Is it simplicity? Can they be synthesized from ordinary options?
More...

Binaries cannot be "synthesized" from regular options. They do offer simplicity though.
 
You must log in or register to reply here.
Back
Top