Buying calls for a living and arguing with derivman

[Derivman]

Quote from MTE:

I assume you're talking about this:

Options: Not a Zero-Sum Game
With the possible exception of futures contracts, trading is not a zero-sum game. In other words, for every winner there doesn't have to be a loser. Therefore, because there are so many different combinations and ways options can be hedged against each other, it doesn't make sense to look at overall figures (e.g., the number of options that expire worthless) and reach conclusions about how many people made or lost money.

For simplicity, let's take the case of a butterfly spread. The fact that one person made money buying a butterfly does not automatically mean that someone else lost. Instead, the person who sold the butterfly may have traded out of the position using spreads or by selling individual options. For every person who is long a butterfly, call spread, put spread, or whatever, there are not necessarily people who are short the corresponding position. As such, the profitability of their positions will necessarily differ.

The problem here is that they don't explain the concept well enough. It is true that if you hold 1 butterfly spread then it doesn't mean that there's someone else holding the exact opposite position, in fact, there may be 4 different people on the other side, one contract each, but the sum of all gains/losses within this mini system is equal to zero. Of course, it may branch out to other participants, but again, that wider system will be zero sum.

Once again, derivatives are contracts and contracts have two parties so no matter how branched out the parties become the sum is still zero. You may not be able to trace a particular gain to a particular loss as the system is too big, but the system is still zero sum!

Thank you MTE for taking the time to read the article as I am beginnig to doubt if many others are reading the articles I post. My understanding is that Zero Sum is when one trader loses X and another trader gains X from the same trade. If this does not happen then it is not Zero Sum. If it is not Zero Sum then surely the advantage is with the one who understands that it is not Zero Sum.

This now raises a very important question. As an aspiring Options trader am I to believe that an article posted on the Optionexpress website, one of the biggest names in Option trading, is not to be believed. And even when I belive it myself after carrying out my own studies and research I am told by many members here that I am still wrong. Someone here is not correct and I am sorry to say that I am more inclined to believe what the Financial experts say, the ones who work in the industry everyday. I have already been given advice to look at Financial Advisors as that is their "job" and now it appears that I am to ignore that advice. I am sorry to say but if I am not careful and use my own reasoning and judgement then I think I may become stagnant, and that is not something that I want to happen. There is no reason why I can't trade Options successfully once I understand the very basics and then move on to the next component, and if my reasoning tells me that it is not a Zero Sum Game then that is how I will approach it. I apologise if I am not agreeing with some traders here but that is my choice which I am free to make. If someone wants to show me differently by results then that will be a different matter, but until such time as that happens trading options is not a Zero Sum Game in my opinion and I will now move on to the next topic that I need to address so that I can become proficient in "Buying calls for a living". Cheers.
Derivman

 

[Derivman]

To avoid any more bullying and conflict I will quickly move on as I like to keep things going at a face pace. As I have now come to believe that option trading is not a Zero Sum Game my next step is to see how can I make use of this factual information. This is where I need to be very careful, for the next step will require me to make a choice as to how I am going to trade Options now that I know it is not a Zero Sum Game. So, what I now need to look at is,

1. Do I buy calls
2. Do I sell calls
3. Do I buy puts
4. Do I sell puts

I will keep to the simple basic buy or sell concept for the moment, as I now know that there are many strategies available depending on my market bias. So, the big question is, which one of the above, or combination of above, is the best choice for trading Options which is not a Zero Sum Game. Cheers.
Derivman

 

[tc5]

Quote from Derivman:

To avoid any more bullying and conflict I will quickly move on as I like to keep things going at a face pace. As I have now come to believe that option trading is not a Zero Sum Game my next step is to see how can I make use of this factual information. This is where I need to be very careful, for the next step will require me to make a choice as to how I am going to trade Options now that I know it is not a Zero Sum Game. So, what I now need to look at is,

1. Do I buy calls
2. Do I sell calls
3. Do I buy puts
4. Do I sell puts

I will keep to the simple basic buy or sell concept for the moment, as I now know that there are many strategies available depending on my market bias. So, the big question is, which one of the above, or combination of above, is the best choice for trading Options which is not a Zero Sum Game. Cheers.
Derivman

I will save you a lot of time. The secret is:

Get the direction and/or volatility correctly. And the timing, risk management, blah, blah, blah...

/thread

 

[Derivman]

Quote from MajorUrsa:

Ehrm, this guy started posting in the "Writing options for a living"" thread http://www.elitetrader.com/vb/showthread.php?s=&threadid=53037&perpage=40&pagenumber=23 right after those vandals ateht and cyof were banned from it (and from ET). Does that ring a bell somewhere, someone. Supertroll.

Ursa..

I have reported others to the mods already so please do not prompt me to do the same here. I started this thread and all topic related comments are welcome. Bullying or name calling will not be left without some action to rectify the wrong doing. If you want to comment then please stick to the topic. I have posted another link from my notes so that I can back up my opinion that Options trading is not a Zero Sum Game. If you are not going to stick to the topic, then please have the decency to do as I have done in another thread, and leave this thread.Cheers.
Derivman

http://www.gametheory.net/Dictionary/ZeroSum.html

 

[Derivman]

To move on as mentioned I will now look at whether I should buy or sell Options as I want to make sure that "Buying calls for a living" is the best approach for the Zero Sum Game. My notes have some further interesting articles that tend to lean towards selling as the best approach.

http://www.trade2win.com/knowledge/articles/general_articles/the-cash-cow/?r

http://investrio.investopedia.com/articles/optioninvestor/03/100103.asp

http://www.optionsxpress.com/educate/investing101/players.aspx?sessionid=

Now, am I to believe these industry experts or am I going to be told by experienced Elite members that they are also wrong. I hope that someone will give me a good reason as to why I should not believe these experts, as the last reasons I got in relation to the Zero Sum Game were not convincing and I decided to go with my own judgement, which has not failed me to date. Please note that most of my researched articles contain scientific research methods with actual market data. They are not based on hearsay. All comments will be greatly appreciated and welcomed. Due to my treatment here I am now looking at another forum where newbies are treated with more respect. I will check back later. Cheers.
Derivman

 

[A Dashing Blade]

Quote from Derivman:
. . .
Now, am I to believe these industry experts . . .

It would seem that your definition of industry expert is "someone who has put some copy on a web page"?
Please correct me if I'm wrong.

 

[atticus]

Ahh, now he's no longer interested in buying gamma on coffee. Now selling is the answer. How long before he mentions selling puts on shares?

C'mon guys... wake up and smell the arabica. It's CYOF/ATEHT -- I give him a few more replies before he utters his dime-store philo. The reference to the absurd citybulls site is overdue.

 

[A Dashing Blade]

Quote from atticus:
Ahh, now he's no longer interested in buying gamma on coffee. Now selling is the answer. How long before he mentions selling puts on shares? . . .

With the ultimate conclusion being that selling otm puts on european-style options is a sure thing as you can always roll them back maybe?

(but don't mention black swan margin requirements tho')

 

[Derivman]

Quote from A Dashing Blade:

It would seem that your definition of industry expert is "someone who has put some copy on a web page"?
Please correct me if I'm wrong.

Thanks Dashing Blade for the reply. I suppose if one wanted to verify the figures used in the calculations then it only requires contacting the relevant exchanges. I tend to believe that John F.Suma CTA has enough experience in the markets to be able to back up what he has said. Do you want me to send him an e-mail to clarify things for the members. I do not know his e-mail but I am sure that I can contact him if I put my mind to it. Let me know what you think, or any other members for that matter. This discussion is now getting interesting. Please keep on topic and try not to call anyone names or bully anyone. Cheers.
Derivman

http://investrio.investopedia.com/articles/optioninvestor/03/100103.asp


CME Data
Based on a CME study of expiring and exercised options covering a period of three years (1997, 1998, 1999), an average of 76.5% of all options held to expiration at the Chicago Mercantile Exchange expired worthless (out of the money). The this averaged remained consistent for the three-year period: 76.3%, 75.8% and 77.5% respectively, as shown in Figure 1. At this general level, therefore, we can conclude that for every option exercised in the money at expiration, there were three options contracts that expired out of the money and thus worthless, meaning option sellers had better odds than option buyers for positions held until expiration.

 

[Derivman]

Quote from atticus:

Ahh, now he's no longer interested in buying gamma on coffee. Now selling is the answer. How long before he mentions selling puts on shares?

C'mon guys... wake up and smell the arabica. It's CYOF/ATEHT -- I give him a few more replies before he utters his dime-store philo. The reference to the absurd citybulls site is overdue.

I do not want to start reporting to the mods again so please refrain from these silly accusations and insinuations. I will reply with a question that is relevant to the topic. It is said in many forums that most players lose in Options trading. Can anybody tell me what is the approximate percentage of losers and winners. Please dont accuse me of putting trick questions here at Elite. I'm not here to trick or offend anybody. I just want to learn how others think and trade. Its a learning process for me and I hope others will see it that way and contribute. Cheers.
Derivman