Do Option Sellers Have a Trading Edge?

xelite777 said:
Slightly off topic but here it is : some option software can supposedly find (and profit from) "mispriced" (over valued, under valued) options in real time using their respective volatility skew graphs.

Can anyone comment on that?
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Explicitly? Probably not.
 
xelite777 said:
Slightly off topic but here it is : some option software can supposedly find (and profit from) "mispriced" (over valued, under valued) options in real time using their respective volatility skew graphs.

Can anyone comment on that?
More...




Any app can calculate the 25D risk-reversal. There is no arbitrage available to trade the skew flat -- down and out skew is a condition exhibited in ALL equity index markets. You really need to step away from the keyboard.

The 25DD RR is around 400 right now. Sell the put, buy the call and short spot. Great, but what of the risk between strikes? There would be no skew if a same-strike arbitrage were to exist. It is that simple.

Why do you run your mouth on subjects in which you are so out of your depth?
 
StarDust9182 said:
I often ask these precise questions to determine how sophisticated an options trader I am talking to. I have others that I have asked on this very forum with surprising results. (If they give a better answer than I can, then I know I am in trouble!)

Who bears the risk?

If the stock goes down to zero and you keep your covered call premium you have paid the ultimate price for risk. Broker is happy, you are unhappy.

If you sell a naked put and can't pay, then the broker carries the risk ( they must make good on your obligation ( unless they use something even more nefarious like Reg SHO and FTDs)). Broker is unhappy, you are happy. Police are called, if they find you then broker is happy and you are unhappy.

Therefore to prevent this loophole in the money flow system, they talk down naked puts and invent margin. Or sometimes photoshop bank statements even - apparently the regulators don't clue in for years.

Of course, if you are a bank or a sanctioned broker ( PFG Best, Refco, MF Global etc). the government will bail you out. Which is you again by another name. Broker is happy, you are unhappy.

Do you see a pattern here? Re-use this pattern on other regulations like insider trading, HFT, taxation etc. It helps you understand the money flow of markets - http://foundingfather1776.wordpress.com/2008/03/19/the-man-and-the-monkeys-a-wall-street-fable/
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I guess sle failed your test? So did jgills?

The government did a great job bailing out refco and mf global and Enron.
 
drownpruf said:
Any app can calculate the 25D risk-reversal. There is no arbitrage available to trade the skew flat -- down and out skew is a condition exhibited in ALL equity index markets. You really need to step away from the keyboard.

The 25DD RR is around 400 right now. Sell the put, buy the call and short spot. Great, but what of the risk between strikes? There would be no skew if a same-strike arbitrage were to exist. It is that simple.

Why do you run your mouth on subjects in which you are so out of your depth?
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Typical Drownpruf's response.

This guy does not have a single clue on how I usually use the option skew and yet he is here lecturing us in every single thread.

Drownpruf, take five (or your pills), you are becoming EXTREMELY annoying.
 
newwurldmn said:
I guess sle failed your test? So did jgills?

The government did a great job bailing out refco and mf global and Enron.
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I don't remember testing sle or jgills or yourself. I only test when I am curious and the right opportunity comes along. The thread discussion requires a clear theoretical bifurcation (chaos theory).

Sle knows his sh*t IMO. I have read and thought about what he said enough to hold an opinion. In a previous post I commented on my position with him and we have both kept the agreement. Others mucked that one up by putting words in my mouth as you well know.

I haven't read enough of jgills or you to have an opinion.
 
xelite777 said:
Slightly off topic but here it is : some option software can supposedly find (and profit from) "mispriced" (over valued, under valued) options in real time using their respective volatility skew graphs.

Can anyone comment on that?
More...
There is nothing here to comment on...
 
xelite777 said:
And yet you are commenting. :p

You are trading options Martin?
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May I assume that this forum hasn't any moderators? Why don't you two just trade emails and spare the folks who are here to learn?

Just saying cuz I'm pretty new here.

Jerry :confused:
 
jerry2dt said:
May I assume that this forum hasn't any moderators? Why don't you two just trade emails and spare the folks who are here to learn?

Just saying cuz I'm pretty new here.

Jerry :confused:
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It does, but thanks to Baron we have a fairly liberal tradition (not the American meaning) where falsehoods and ignorance are exposed through vigorous debate.

Strident verbal diarrhoea is usually a reliable marker of abject stupidity.
 
jerry2dt said:
May I assume that this forum hasn't any moderators? Why don't you two just trade emails and spare the folks who are here to learn?

Just saying cuz I'm pretty new here.

Jerry :confused:
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Tell you what, why don't we just all communicate via emails and forget about the forum?
 
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