Journey from investment bank to independent automated trader

TraderZones · Jul 3, 2009

Quote from Ash1972:

Me fooled by randomness? Well, it's not impossible.. any system that is set up to profit from big moves could be susceptible to no such moves happening for a long time - possibly ever. The lack of black swans for longer than you expect could itself be a black swan.

However, there is a mountain of evidence to suggest that those who want to make money frequently by betting on likely events (i.e. betting against unlikely ones) will ultimately lose. Trying to "get it right" all the time is precisely the problem. Those who bet ON the unlikely outcomes are the big winners.

So few people get this it's staggering. Can we have a show of hands? Who actually agrees with me?

I agree that your 2008 up 100% and 2009 down -25% gives you little claim as successful.

Ash1972 · Jul 3, 2009

Well, the only downside to being long vol is the cost of buying the options. Reduce that cost to the maximum extent and you then maybe have an edge from profiting from big moves.

Ash1972 · Jul 3, 2009

Quote from TraderZones:

I agree that your 2008 up 100% and 2009 down -25% gives you little claim as successful.

Yes that's absolutely correct. I was only asked about 2008 and 2009, not any other years.

We're only half way through 2009..

My system has performed staggeringly well over the last 30 years in backtesting. The point at which I started using it for real is pretty much irrelevant. It was 2006 if you want to know.

asiaprop · Jul 3, 2009

lol, guess what the short side in the meanwhile is doing ;-)

Quote from Ash1972:

Well, the only downside to being long vol is the cost of buying the options. Reduce that cost to the maximum extent and you then maybe have an edge from profiting from big moves.

Ash1972 · Jul 3, 2009

Quote from asiaprop:

lol, guess what the short side in the meanwhile is doing ;-)

Yes, it's impossible to get an edge buy buying options - Mr Taleb's fund demonstrated that very well. Don't buy options, instead simulate owning them by trading the underlying. That's what trendfollowing is, roughly speaking.

asiaprop · Jul 3, 2009

dont see the connection there...

Quote from Ash1972:

Yes, it's impossible to get an edge buy buying options - Mr Taleb's fund demonstrated that very well. Don't buy options, instead simulate owning them by trading the underlying. That's what trendfollowing is, roughly speaking.

Ash1972 · Jul 3, 2009

The summed up costs of all the stopped out trades in a trend following system is conceptually equivalent to option premium cost.

asiaprop · Jul 3, 2009

i dont see any conceptual equivalent whatsoever. The risks are not identical, the exposure is not, the premia are not, nor are 99% of the times implied and realizeds matching. Not sure what you are talking about.

Quote from Ash1972:

The summed up costs of all the stopped out trades in a trend following system is conceptually equivalent to option premium cost.

Ash1972 · Jul 3, 2009

Quote from asiaprop:

i dont see any conceptual equivalent whatsoever. The risks are not identical, the exposure is not, the premia are not, nor are 99% of the times implied and realizeds matching. Not sure what you are talking about.

If you are an options trader per se, i.e. hedge delta and take vega positions only, then yes, it's difficult to understand what I'm saying.

Suppose you just buy calls to bet on the market going up, puts to bet on it going down and straddles to bet on it going either way - which is what everyone did before Messrs Black & Scholes wrought their mischief - then it's actually very intuitive to see how paying option premia equates conceptually to paying the losses on stopped out trades that fail to catch trends.

asiaprop · Jul 3, 2009

the idea is there but the concepts and especially the exposures are completely unrelated. If you talk about the positive correlation between a long call and a long position in he underlying then thats as naive a view as it gets. Sorry, but I simply disagree to even compare those two. Anyway, have a good weekend all

Quote from Ash1972:

If you are an options trader per se, i.e. hedge delta and take vega positions only, then yes, it's difficult to understand what I'm saying.

Suppose you just buy calls to bet on the market going up, puts to bet on it going down and straddles to bet on it going either way - which is what everyone did before Messrs Black & Scholes wrought their mischief - then it's actually very intuitive to see how paying option premia equates conceptually to paying the losses on stopped out trades that fail to catch trends.