Buying calls for a living and arguing with derivman

Quote from atticus:

Any single option in isolation, put or call, is zero-sum. Portfolios of options are not zero sum.
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But as a portfolio is no more than several Options grouped together, how can the rules be changed? Are you saying that by using various Option strategies you can make it not be a Zero Sum Game. I am finding it hard to grasp this concept when so many seem to differ. Am I not correct in thinking that it is either one or the other and can not be both? Cheers.
Derivman
 
Quote from Derivman:

But as a portfolio is no more than several Options grouped together, how can the rules be changed? Are you saying that by using various Option strategies you can make it not be a Zero Sum Game. I am finding it hard to grasp this concept when so many seem to differ. Am I not correct in thinking that it is either one or the other and can not be both? Cheers.
Derivman
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Many counterparties. Zero-sum refers to a single option transaction. Open interest is zero-sum. One inference is that the money will flow to the most proficient.
 
Derivman,
The best advice I can give is that you should not trade options. If you feel you must then spend the next several months reading and learning all about them, Natenberg's book is a good start, then paper trade for awhile to see what happens in real life, and get a theoretical pricing model and understand it. Once you have done these things then you can ask more advanced questions and possibly get some help. Experienced traders are not usually inclined to answer a lot of basic questions.
 
Derivman,

You seem to be lost in all these different concepts. I'm not going to answer your original question about the coffee speculation as the discussion has kinda moved on to other, albeit related, things.

First of all, move on from zero sum game concept. It's the feature of all derivatives markets and it has absolutely no bearing on you being profitable or not. In other words, who cares if 1 or 100 people had to lose money for you to make $100K profit, as long as you are on the winning end you get my drift!?

Second, options are not some magic instrument where you can turn a losing trade into a winner by rolling or adjusting. That is, some people call it a roll or an adjustment, I call it closing an existing trade and opening a new one.

Third, get yourself educated about option theory before making any trades. Pick up a few books such as "Options as a strategic investment" by McMillan, "Option volatility and pricing" by Natenberg, "Options trading: the hidden reality" by Cottle and also have a look at "Option market making" by Baird. These books will clear up quite a few concepts for you and you will finally be able to see through all that hype you were reading on various websites.

Finally, your idea about coffee and China is fine, no one is disputing it, but, as FA has pointed out, there's a long way from this idea to the actual trade and options MAY NOT be the best instrument to implement this idea. However, without understanding the theory behind options you cannot make an informed decision about what is the best strategy and instrument to use.
 
Let me add a plug for Stu Johnston's book "Trading Options to Win". Excellent book on commodities options (and options in general).

I will also echo what others have said. Put down the mouse and move away from the broker's website. Do not put any money into your coffee bet until you have done *alot* more research. You are at the front end of a sizeable learning curve. Moving up the curve isn't expensive, but it takes time and effort. If you start trading before you have made enough progress, it will get *very* expensive.

If you don't have the time or inclination to fully pursue trading (very understandable), investigate some of the hundreds of CTAs out there. Some are good, many are bad. But at least trading is their full time job :)
 
I want to thank you all for taking the time to reply. Just so you are all aware I have some experience with trading Index Futures, namely the ES E-mini. I have had some success but found that the price can move so much it is very easy to get caught if you enter the market at the wrong time. In relation to Options I have many books already and I will look at the ones you have recommended. I have read on other forums that the more you learn about Options the better chance you have of becoming successful at trading them and this is why I want to get to the bottom of the Zero Sum Game as I like to learn about one thing completely and then move on to the next. It is time to dip my toes in the water so as to speak, and then my foot followed by my other foot. As Elite has many experienced traders I thought that this forum is the best place to ask my questions. Having said that I have been already given links to non existing websites on the other thread where I started posting and I hope this was just an isolated incident as I see that a lot of traders here are willing to help others.

http://elitetrader.com/vb/showthread.php?threadid=53037&perpage=6&pagenumber=153

Again, thanks for your time and I will now review my notes as I have already done a lot of study on the subject of Options. I will return with some solid questions this time so that I do not waste anyones time. Cheers.
Derivman
 
I have just made a reply to a post at the following thread.

http://elitetrader.com/vb/showthread.php?threadid=93050

Apologies for shifting off the topic slightly but when I saw the post by crgarcia it made me think about some articles I had read in relation to the % of options expiring worthless. As I want to start off with the best chance of making some money trading Options then I am willing to change my approach if required. As I mentioned I am new to Option trading and at the moment I have not decided what way to trade. I will look up my notes and post the link. Again I would like to thank you all for your kind help so far and I am now glad that I started to ask my questions on Elite and not on another trading forum.Cheers.
Derivman
 
Aside from your probable bleeding to death from time decay, I feel that your fundamental thesis is flawed - i.e. you base your analysis largely on the misleading 1.2bn population metric.

If the numbers of Chinese coffee drinkers are growing dramatically (I admit I haven't checked), it's flattered by coming off a very small base. The vast majority of ordinary citizens of PRC are not going to adopt a meaningful coffee habit anytime in the next several years. Besides, if impending growth is that obvious, won't this be largely already reflected in price?

I admit my comments are empirical observation, shaped by what I see sittting here right on China's doorstep. In HK, Starbucks and the main competitor open new stores as fast as elsewhere, but the demographic profile of the patrons is quite narrow, and skewed to youth. China, by contrast, has a population with a declining proportion of young people.

But if you are still convinced by your analysis, you might realise it in a more financial efficient way via the equity of companies involved directly in supplying the market.
 
Quote from dunleggin:

Aside from your probable bleeding to death from time decay, I feel that your fundamental thesis is flawed - i.e. you base your analysis largely on the misleading 1.2bn population metric.

If the numbers of Chinese coffee drinkers are growing dramatically (I admit I haven't checked), it's flattered by coming off a very small base. The vast majority of ordinary citizens of PRC are not going to adopt a meaningful coffee habit anytime in the next several years. Besides, if impending growth is that obvious, won't this be largely already reflected in price?

I admit my comments are empirical observation, shaped by what I see sittting here right on China's doorstep. In HK, Starbucks and the main competitor open new stores as fast as elsewhere, but the demographic profile of the patrons is quite narrow, and skewed to youth. China, by contrast, has a population with a declining proportion of young people.

But if you are still convinced by your analysis, you might realise it in a more financial efficient way via the equity of companies involved directly in supplying the market.
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Thanks for the reply dunleggin. If my mind is working correctly one of the big advantages of using Options is that you do not have to call the market right and you can still have a good chance of making some good money. You made some good points in relation to the fundamentals and I note what you have said. So far I am tending to lean towards the selling of coffe ATM puts 3 months out as I know that I will get the premium payed into my account and according to some of the other threads I have read, and my notes, the time decay will reduce the value of the premium as the time passes. On the other hand, if I buy the ATM calls 3 months out, which I now understand is the same thing in relation to my market bias and that is the market price will increase, I can always roll over positions without losing money if they expire worthless. But I can also roll over the short puts the same as the long calls and as I said I have not decided what way to trade yet and I am grateful for all the input by the various traders. I am looking at opening an account soon and start with 1 contract to dip my big toe in. After one or two trades I can then look at what way it turned out and then start to increase my contract size for bigger profits.Thanks for the help. Cheers.
Derivman
 
Quote from Derivman:

On the other hand, if I buy the ATM calls 3 months out, which I now understand is the same thing in relation to my market bias and that is the market price will increase, I can always roll over positions without losing money if they expire worthless.
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Huh? If the calls you buy expire worthless then you cannot roll them over without losing money. I don't mean to be rude, but it sounds like you are throwing out a lot of terms you read without understanding them.

If you are an existing ES emini trader how can you not know what zero-sum is?
 
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