Buying/Selling Options

[RichardRimes]

Quote from yip1997:

Seriously, how is Cottle's "Option Trading: The hidden reality" compare with Baird's "Option Market Making" or "Dynamic hedging" by Taleb?

I don't want to spend too much time in reading. Instead, I prefer to trade, to write software, and of course to read posts from you guys.

Please help me to select the best one from these three.

I'm with you Yip, I'm about ready to buy a "Cottle" but only one..someone start a poll on which book is best over-all...my goal is better understanding of the Greeks.

Thinking about it I think Phil (coach) should write a book..
"Understanding Greek" or "Greek Speak" He (&Partner) writes with good clarity. The only complaint I have of Cottle (from exerpts) he uses too many words.

 

[El OchoCinco]

Cottle's most recent book is really an update of his previous books with new information and charts and graphs. So best bet is to get the new recent one in color.

Quote from RichardRimes:

I'm with you Yip, I'm about ready to buy a "Cottle" but only one..someone start a poll on which book is best over-all...my goal is better understanding of the Greeks.

Thinking about it I think Phil (coach) should write a book..
"Understanding Greek" or "Greek Speak" He (&Partner) writes with good clarity. The only complaint I have of Cottle (from exerpts) he uses too many words.

 

[yip1997]

Quote from RichardRimes:

The only complaint I have of Cottle (from exerpts) he uses too many words.

I have the same impression from part of the book downloaded from his website. It was not an easy read for me.

If you want to be one of them, ask their recommendations.

 

[MajorUrsa]

Quote from exQQQQseme:

Butterflies....just wondering if there are any butterfly lovers in here and would like to take part in a discussion of them.

I am biased to the Out of the Money flies. Reason: the further out of the money the body is, the lower the net debit. Same is true for In the money, but the problem there is the constant threat of assignment.

With all due respect exQQQQseme, this is exactly the reason why you should read Cottle (or something comparable, which there isn't) before entering on fly's or straddles whatever.
Fly's are the perfect example of risk/rewards on option combo's always being 'the same'. That is: you get what you pay for. Suppose you pay 1 dollar for a fly that may/i] become 5 dollars max worth at expiration. If you do that repeatedly over the years you will find that you will have success in 20% of the cases. You will breakeven in the long run. That is because that is how ALL options are priced.
A fly that costs 2.50 will reward in 50% of the cases, on average.

The actual amounts payed or received are totally unimportant. What counts is the probability of the reward. In fact, butterfly's are perfect to estimate the currently perceived probability of the fly's interval being touched at expiration.

Read the book, you'll be grateful you did. If you already did, do it again and you'll see that your question is moot.

Ursa..

 

[dagnyt]

Quote from tower:

Major:

In my opinion the best author on managing risk is been Cottle...

To me, all Cottle does is show the reader how to use equivalent positions. Useful information, but almost worthless to the retail customer.

Mark

 

[exQQQQseme]

Hi Major. I take it you would not like to see any discussion here on the subject of Butterflies. No problem with that. If several others feel as you do, I'll keep my thoughts to myself.

Bob

 

[MajorUrsa]

Quote from dagnyt:

To me, all Cottle does is show the reader how to use equivalent positions. Useful information, but almost worthless to the retail customer.

Mark

That depends on what you consider 'retail'. If you only use options to go long/short the underlyer, instead of trading the actual contract, it is not really needed to know about equivalences.
As soon as you start to use puts to protect your long stock, or if you use your stock to 'cover' your call, you must know that they are equivalent to a long call, resp. a short put.
And if you trade options for their own sake, to scrape gamma or vega, and you regularly adjust your position, it is essential to know that the adjustment is in itself another trade, eg. a vertical.
By becoming aware that any adjustment is in effect the same as adding a new position, you start wondering whether you would take that added position on it's own in the current circumstances.
Eq. rolling a short stradlle to the next month is equivalent to doing a short calendar. Knowing under what circumstances one would normally 'do' a short calendar, it could become clear that rolling is not such a good idea, now.

Ursa..

 

[yip1997]

Quote from MajorUrsa:

You will breakeven in the long run. That is because that is how ALL options are priced.

Read the book, you'll be grateful you did. If you already did, do it again and you'll see that your question is moot.

Ursa..

Ursa,

I respect your knowledge of synthetics. However, every strategy you open, you will breakeven on average (excluding commission and slippage). I don't have to read any book to realize it.

Understanding synthetics will not make me/you a profitable trader. I'll like to see how people adjust their position. If 4Q is willing to demonstrate how he will manage fly, lets not discourage him. I like to see at what situation he will open butterfly, and how he manages it.

 

[rallymode]

Interesting discussion on Cottle. Why is it that when his book is brought up synthetics is all he gets credit for? I am yet to see another retail book which better explains the skew and its effect on the greeks as time or price moves.

 

[dagnyt]

Quote from MajorUrsa:

That depends on what you consider 'retail'...
As soon as you start to use puts to protect your long stock, or if you use your stock to 'cover' your call, you must know that they are equivalent to a long call, resp. a short put.
And if you trade options for their own sake, to scrape gamma or vega, and you regularly adjust your position, it is essential to know that the adjustment is in itself another trade, eg. a vertical.
By becoming aware that any adjustment is in effect the same as adding a new position, you start wondering whether you would take that added position on it's own in the current circumstances.
Eq. rolling a short stradlle to the next month is equivalent to doing a short calendar. Knowing under what circumstances one would normally 'do' a short calendar, it could become clear that rolling is not such a good idea, now.

Ursa..

I'm not disagreeing with you. Knowing the equivalents is important. But, does the retail trader (account with IB, or OE, or Schwab etc) really gain anything? He gains undertsanding - yes - and that's important. But, I doubt he gains anything of practical use.

All I really meant is that is if a trader has a position and wants do adjust it, it's simpler to (for example) buy in a short call than to buy the underlying plus the equivalent put. Even if I could gain a nickel or perhaps a dime by doing the syntheytic equivalent, I would never do that as a retail trader (I did it all the time as a market maker).

I'd give up the dime and have a 'clean' position, rather than have a more complicated position with a reg T requirement (if one buys the underlying stock). If I had a prop account with haircut requiremnts that would be different, but with IB, it's better for me to keep positions simple and margin requirements as low as possible.

Mark