Well you go to a lotto counter and place all your money on a ticket.
I told you BS was BS!
- Thread starter wxytrader
- Start date
Yes, because crows will fly away before the rain comes. Causation and effect. Math is just language used to prove an idea or a theory. The real genius is coming up with the idea or theory. Stephen Hawkings would come up with a theory on relativity and he would then run it by the mathematician to see if it was correct.
Here is a bit of a babble, forgive my grammar / typos:
There are many ways to trade options and the strategies need to fit your own personality, such as how long you want to be in the trades, how actively you want to manage the positions, etc.. Here are few things you could explore further.
If you’re still learning, then I’d suggest to stick only to limited risk spreads (selling premium but ALWAYS with protection).
Maybe focus on wingspreads (butterfly, condor, broken wing, ratioed vertical, unbalanced, etc,) because they’re forgiving and versatile structures (if you learn how to set them up properly)
In terms of DTE, you can do them short term, the returns are higher, BUT it can be hard to keep up with the Deltas. Or you can do longer term DTE and then you won’t need to baby sit them, but the returns will be lower, although there are ways to trade around the positions to increase the returns.
You can configure wingspreads to be delta neutral, or to be directional by placing them away from the market, or you can do slingshot hedge (butterfly + extra naked long).
You can even configure wingspreads to be very stable with low directional risk and low volatility risk. (You need to experiment with the different configurations as there are so many variables)
If the IV is low, you can add theta boosters by strategically placing a calendar next to the wingspread to get you more theta and to act as IV hedge).
It’s best to enter wingspreads is after the IV exploded, and during those times there can be mispricing and you can get them almost for nothing and sprinkle them around in different stocks/sectors when such opportunity presents itself.
There are few ways to manage Wingspreads. You can do so by greeks and move the “tent” with the market (providing there are say more than 2-3 weeks left to expiration. Or you can learn how to dissect them and manage the components based on what part of the spreads is worth keeping/exiting (Charles Cottle is expert on this). Or you can manage the wingspreads based on TA, and/or combine all the management techniques together.
If you decide to go the dissection method, then you need to learn what are the components of your spread, how to prioritise risk of each component, and how to determine cheap vs expensive for each component.
Entering into spreads is also flexible and personal thing, my preference is to start slowly building spread positions at key inflection points on weekly charts where the magnitude of the move could be protentional be larger and so would the increase/decrease in IV.
Sometimes ratio backspreads are better strategy at these key levels, but either way, you should plan few steps ahead so if you’re wrong, then you should have a plan to morph the trade with just 1-2 adjustments to neutralize the risk. And as the market bounces off key levels on Daily or 2-hourly charts, then you can then consider adjusting with only part of the spread (or trade stock/CFD around those key levels if the bid/ask on the options wide as slippage adds up) with the aim to turn it into a risk free trade as soon as possible.
But I tell you what, options can be a real pain in the ass because you get perfect setup on the stock, and then you go to the option chain and realise that it’s not worth messing around with options because if you’re going to be adjusting, then you’ll get slippage, and it adds up, so in theory adjustments sound awesome, but you really need focus on the the very liquid stocks, be good at choosing the right strike, and think few steps ahead how you’re are going to exit if thing go wrong.
In case the market starts falling really fast the bid/ask will widen, you’ll be getting shitty fills, and so you should know to hedge / neutralize the multi-leg spread with just one quick simple trade, and know how to keep up with the Deltas by buying/selling the right amount of the underlaying stock/CFDs to keep up in with the deltas. The Murphy’s law is that the market begins to tank when you have number of open positions, and then you need to be able to neutralize the risk with just one simple trade on each position at risk.
Unless you love options, I’d stay away from them, it can be very deceptive.
I prefer stocks / FX because of the easy fills.
You’re impossible to underestimate. Please just tell me you don’t plan to sell courses on how to trade.
Almost nobody makes any money racing (cars, motorcycles, airplanes, sailing, horses) It is funded out of the owners pocket and if you are very good maybe some sponsorship money. Hence the observation that to make a $1M (in prize money) you need to start with $3M. You have not literally made net a profit of $1M, but a gross loss of $2M.
Dude, are you that bored?
Is that a praise? A complement?
I knew where you are going,but you need to be very clear with these posters..
Even I, clueless about the Greeks, know what Warren Buffett also knows:-
In his 2008 letter to the shareholders of Berkshire Hathaway, Warren Buffett wrote: "I believe the Black–Scholes formula, even though it is the standard for establishing the dollar liability for options, produces strange results when the long-term variety are being valued... The Black–Scholes formula has approached the status of holy writ in finance ... If the formula is applied to extended time periods, however, it can produce absurd results. In fairness, Black and Scholes almost certainly understood this point well. But their devoted followers may be ignoring whatever caveats the two men attached when they first unveiled the formula."[41]
If only LTCM knew.
In his 2008 letter to the shareholders of Berkshire Hathaway, Warren Buffett wrote: "I believe the Black–Scholes formula, even though it is the standard for establishing the dollar liability for options, produces strange results when the long-term variety are being valued... The Black–Scholes formula has approached the status of holy writ in finance ... If the formula is applied to extended time periods, however, it can produce absurd results. In fairness, Black and Scholes almost certainly understood this point well. But their devoted followers may be ignoring whatever caveats the two men attached when they first unveiled the formula."[41]
If only LTCM knew.
Wow, this is really good, no one has ever given me such a comprehensive treatise.
You have given me plenty. Thank you very much.
I am a one trick pony, only buy lottery ticket calls/puts. I have been trying to learn spreads and butterflies but have not been able to make any real progress.
Why butterflies? This: slingshot hedge (butterfly + extra naked long).