BlueWaterSailor: trading journey and journal
- Thread starter BlueWaterSailor
- Start date
Thanks, @.sigma! I started with a fancy(ish) chart based on a 45-day hold, with nicely-defined daily percentages - but then I realized that almost all of my trades went flying out the door at 10%, which didn't do much for my returns. I've also done pretty well at zeroing in on my preferred combination of strike distance, premium, and per-day P&L - which is usually quite a bit shorter than 45 days (more like two weeks.) I tossed the chart out the window but kept the basic idea, and here's what I've got now:
0-1d: 20%
1d-1/4 of DTE: 33%
1/4-1/2 of DTE: 50%
1/2-3/4 of DTE: 75%
If it hasn't hit any of those (and the greatest majority do, usually at or before the 50% mark), I'm already giving it the ol' gimlet eye; it'll either be ITM or close to it, and I'm most likely putting some skull sweat into what to do with it. Depending on where it is, I'll most likely roll it - or, if it's one of the underlyings that I want, I'll take assignment.
The key factor here, though, is making a good entry - and I've got a pretty good handle on those. That's made a big difference. If I've grabbed it somewhere near the low of the price range and squeezed as much premium out (via price discovery) as possible, then volatility in the underlying will often swing the price of what I'm holding enough to tick the limit that I've set in a fairly short time.
Now, all I've got to do is learn how to "fight" the few that do go astray - and that's the hard part. But it's also where much of the art and skill in options lies, so, perverse as it may sound, I'm looking forward to being in the red once in a while. Might as well, since it's going to be one of the reliable facts of my life from here forward... besides, I think I cut a dashing figure with a sword in my hand. En garde, you damned ITM put!
(Blades fencing club, St. Thomas USVI; shorts were sorta de rigeur.)
Options do not lie, it is the perceived IV that does...
What's a "perceived IV", and how does it lie?
Unless it's some guy with a weird name, I'm not sure how anything without agency - like a number - can perform an act of will such as lying. Totally in the dark here...
Precisely my point. What WE perceive the Option’s iv to be is our ‘pit fall’ .. after all it is ‘implied’ by current prices, but under an assumed pricing model.. and then there is that smile .. and those traders who are better than others in detecting those ‘lies’ (over-statement or understatement of the underlying volatility ) are likely to make better trades...
So you're talking about implied volatility. OK.
"We traders" don't "perceive" implied volatility, and there's no detection involved; it's a number that's produced by a model. One that is designed to be as accurate as possible, because no one would benefit from it being otherwise. And IV is not "implied by current prices" - have you actually looked at the BSM, or any of the other models? - but calculated using a variety of inputs including historical volatility. And no, historical volatility is never over- or under-stated; historical, in this case, means "factual"; that is, the volatility that was actually measured in the past. Implied, on the other hand, is typically overstated - for good and sufficient reasons. That's not a "lie"; it's a well-known, documented fact.
The thing that you may be thinking of - that IV does not (cannot) accurately predict future prices, and that any trader who can do a better job than the best models can profit - is not some lie to be detected but a simple statement of facts. If you can predict better than most, you'll make more money. There's no need to construct a conspiracy from that.
@Stamamarti , I'm absolutely not trying to be disparaging here - but you seem to be implying some nefarious IV-based plot in options that simply doesn't exist. This may just be a style issue, but... I'm glad that I've learned enough about options at this point to see it for what it is. If I was brand new to options, I'd have found it confusing as hell - and would have resented the mystification.
I'm still mystified, and I don't even pretend to be, on TV.
The fack with all this 10-D chess.
Ok @Blue — whatever you say..I am realty not sure how to respond ..after all it is your thread... perhaps we can revisit this old question of ‘ who came first , the chicken or egg’ in the context of the price or the IV of the option.. after a year or two of your sailing in these waters...in the meantime I wish you safe sailings...
It's good geeky fun, for them as likes it.
Just thought of a musical analogy to our ongoing analogy of future vs. option trading.
In my mind, here's futures trading...
And here's option trading...
I bet even destriero would agree. Layers of depth and stuff.