Buying/Selling Options

Bob, let me add a few comments here regarding options trading. One of the biggest beefs I have with traders, including many on this board and Optionetics is this idea that you can put on canned strategies with the idea I don't care what the market or stock does, I'll just adjust.

There are two ways of making money in this business as far as I know. You either need to be a damn good directional trader, or a damn good volatility trader. This is why I give so many guys shit about selling 5 delta verticals on the SPX thread. You'll often here them say things like "I don't care what the market does, I'm safe". LOL. That is not a volatility trader. People work very hard in this business forecasting future volatility and future price action. It's comical that some think you can just slap on a spread and make an adjustment here and there and make money. Yet, many of the late night infomercial groups tell you it's just that easy. I hear all the coin phrases: "I can always adjust", "I can leg into a fly", "my spreads are safe because they are DOTM", "I can only lose my debit so I'm not worried", "I have edge from my theta", etc....... And it goes on and on. You will never hear a professional trader utter these phrases. They are usually the mark of an amateur.

This is a very tough business. If you are going to make it, it's because you develop into a great trader. Not because you can slap on spreads at good prices.
 
Quote from optiontraderman:

The rest is absolute shite and you spend most of your time talking bullshit about theory and hardly any time talking about how to make money. I wouldnt want to give my secret away would I?
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You get alot of theory rhetorics because that's all a person needs to fall back on to disprove false statements such as "there is edge in collars" or "low debit flies are better". There is no need/or desire on my part to post a real "money making trade" to prove a point. Any semi intelligent person can draw their conclusions from theory. You dont have to believe it, it's a free world and you are free to trade any way you please. Apparently, the "education" on some other boards is one sided and occasionally it tries to invalidate option theory which should come as a no surprise given the vested interest in the success of such boards. Utter nonsense usually gets ripped apart over here and should be of no surprise to you.

If you expect someone to share with you a method on how to make money, keep waiting. What have you got to contribute in return? I am yet to see a post of yours worth reading.
 
Maverick, your statement, "There are two ways of making money in this business as far as I know. You either need to be a damn good directional trader, or a damn good volatility trader."

A lot of excellent food for thought there.

In that posting you made reference to certain things a "professional trader" would not say. And you made reference to an "amateur" in a negative manner.

Thus, the follow up question in my mind is: Are you implying that only professionals make consistent profits trading options? Is there a further implication that the person who has a full time job and is only able to trade options part time, has virtually no chance of success? I don't mean this as a provocative response. But, as I read and digested what you had to say, this question came to mind, so I asked.

Bob
 
Quote from exQQQQseme:

Maverick, your statement, "There are two ways of making money in this business as far as I know. You either need to be a damn good directional trader, or a damn good volatility trader."

A lot of excellent food for thought there.

In that posting you made reference to certain things a "professional trader" would not say. And you made reference to an "amateur" in a negative manner.

Thus, the follow up question in my mind is: Are you implying that only professionals make consistent profits trading options? Is there a further implication that the person who has a full time job and is only able to trade options part time, has virtually no chance of success? I don't mean this as a provocative response. But, as I read and digested what you had to say, this question came to mind, so I asked.

Bob
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Bob,

Let me put it to you this way. Most "professionals" in this business do not make money. The amateurs almost don't have a chance. Not saying it's impossible, some will. But I think the ones that do is mostly attributable to random luck. When I talk to people who do this part time or on the side to a full time job they usually point out a lucky stock they caught or they walked into an index before a huge move quite by accident. Very seldom do you find part timers that earn consistent income month after month without adjusting for risk. In other words, are they outperforming a benchmark with the same or less risk. If they are not, they should just invest in that benchmark. If they are, then they are doing something right. But I find those people few and far between.

I have been doing this for 12 years now and I have met thousands of traders in my life. I spend a great deal of time analyzing other traders, both the good and the bad. Sooner or later, traders revert to a long term mean which is usually the benchmark. Very few can actively beat that benchmark over long periods of time. I just don't believe in my heart of hearts that one can do this well part time or on the side. Not saying you can't make money on the side. That's a separate issue. We are talking about outperforming a benchmark here, not just making money.

I am not basing this opinion on one or two traders I met, but on thousands of traders I have met. I'm sure there are outliers out there, but we have to discount those as in any study.
 
Maverick, we've got a good discussion going here. Can you elaborate on your use of the term "benchmark"?

Another thing I'd like to put on the table here. In the earlier posting you brought up the subject of a good volatility trader. As you and I both know, Implied Volatility (IV) doesn't really refer to the option, it relates to the PRICE of the option - both the Bid and Ask. In that connection, I don't see how the small retail trader such as myself would even have a shot at being a good Volatility trader because we simply place our order on the computer, usually a Day order, and sit back and see if it fills. I know we could attempt to control the fill IV with a contingency order, but in the case of me and thousands like me, my time is valuable in my full time unrelated business and I simply haven't the time. (Sorry for the over use of the word "time" but here it might be appropriate.)

Any comments?

Thanks,
Bob
 
Bob:


A word of advice here. Most people will simply criticize here rather than engage in honest discussion. Anonymity usually leads the common response to be rude and condenscending.

Basically there are two types of responses. The educational criticism, which is rare but quite useful here, is when the person responds to highlight some points in a clear manner with a true intent to help or clarify a mistake or misconception.

The other more common is the terse rude comment of the superior nature which is meant to demonstrate how much they know and how little you know and prop themselves up a bit while shredding a newbie. There usually is useful info buried in the superior attack but the tone and arrogance kind of obscures the great info. It is truly a downside of ET as egos make many demand everyone in options know as much as them and fail to take into account different backgrounds and paths to the same goal.

I am certainly no reigning expert but I enjoy good option discussions since there always will be those who know more than me. But in order to get the most out of it, you have to ignore the holier than thou attitude most take here in giving advice. I read in silence many posts and am amazed how nasty people get in responding to someone who simply posts a question or idea.

So Bob, if you forget about expecting courtesy and maturity, you can read between the lines and learn a bit no matter your level. No one has the right to put you down for the strategies or time you commit because no one knows you. They can certainly offer constructive advice. I have gotten to know you well so thus I understand where you are coming from.

My honest advice, do not post any position here at ET. From someone who has done it for almost 2 years in the end it might not be worth it as more people are likely to jump on you before helping (although they see it as helping and ignore their own tone).

People who do not trade your strategy or have no interest in it will post and 1 out of 3 will be more disruptive than helpful.

So bottom line, ignore the tone of any posters as ET is not known for good natured discussions without nastiness. Now I am not referring to everyone who has posted here as you can see some posted with true interest and sincere questions. I went through the firing squad myself when I first started posting and we all do if we are new.

So ignore the tone, focus (I said it 3x but it is important lol) on the info and share positions only with those that are interested, and not to "prove" anything. As MAV said, the goal is to make money, not be the best on ET :).

Oh yeah... never use words such as "edge" "positive expectancy" or "best strategy"
 
Thanks, Coach. You and I have had some real good exchanges for a few years now and I always respect your advice. As far as just ignoring a bad response of the type you have described...you're probably right. But, I'm just not programmed that way. If I see something I believe to be wrong, I'll say so. If later I notice that I was wrong, I'll admit it and also apologize.

In that vein, I never engage in personal attacks and always do my level best to limit my remarks to the subject matter and not to the person making the comment.

Bob
 
Quote from exQQQQseme:

Maverick, we've got a good discussion going here. Can you elaborate on your use of the term "benchmark"?

Another thing I'd like to put on the table here. In the earlier posting you brought up the subject of a good volatility trader. As you and I both know, Implied Volatility (IV) doesn't really refer to the option, it relates to the PRICE of the option - both the Bid and Ask. In that connection, I don't see how the small retail trader such as myself would even have a shot at being a good Volatility trader because we simply place our order on the computer, usually a Day order, and sit back and see if it fills. I know we could attempt to control the fill IV with a contingency order, but in the case of me and thousands like me, my time is valuable in my full time unrelated business and I simply haven't the time. (Sorry for the over use of the word "time" but here it might be appropriate.)

Any comments?

Thanks,
Bob
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By benchmark, I mean something that you could invest in that produces similar returns. Many people by default use the SP 500 by default. You could use the CBOE buywrite index if you like to sell premium. There are many ETF's out there that use particular trading styles that might be similar to yours. The bottom line is, if I can invest my money in an ETF and make 10% a year without putting any labor into it, why would I want to bust my ass working long hours on top of my regular job just to make 12% a year. Follow?


By volatility trader I mean trading either pure volatility (implied) or spot volatility. By spot I'm referring to front month gamma sellers. They are not really making a bet that implied levels are going to drop but rather that Index XYZ will not trade above 1700 in the next 30 days. That is a spot volatility bet. Think credit spreaders. Implied volatility traders selling index vol at 18% and looking to buy it at 15%. Both these traders are not overly concerned about direction.

The problem of course is that every vol trader is making a de facto directional bet whether he knows it or not. And every directional trader is making a vol bet whether he knows it or not. This is where many trader shortcomings are. This is why at the end of the day, I really believe you need to be a decent directional trader.
 
Quote from optioncoach:

Bob:


A word of advice here. Most people will simply criticize here rather than engage in honest discussion. Anonymity usually leads the common response to be rude and condenscending.
.....


Oh yeah... never use words such as "edge" "positive expectancy" or "best strategy"
More...


Good point. There is huge gap between traders who trade for living and chat forums. There is specific group of people which dominates most trader`s chat places (and I just have learned that such groups exist in many cultures). What they have common is big mouth. Some of them read a lot so it is sometimes hard to see them through. Another common thing about them is that they are inefficient, so forum gives them "safety gauge" area where they can move their frustration.

There is some valuable info on ET, but it takes time to find it.
 
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