Mistruths about Options
- Thread starter aphexcoil
- Start date
I ask because I Just started writing index otm strangles. I started on the oex giving myself 10 % over and 10 under .
I understand the risk involved, basically everything I read adviced against such a strategy but by writing index I feel I have dramatically reduced my risk compared to a "stock" strategy. I'm also prepared to exit quickly should the market move against me.
Nick
I have been trading options for several years now and do not find them any more difficult to trade that stocks or futures. Only the bet sizing methodology is different, that's all.
Well, that's an overstatement
(am I arguing with myself?) 
Remember to be careful not to trade options thinking you are trading stocks, they are worlds apart. Anyway, there are many good option trading schools around.
Well, that's an overstatement
(am I arguing with myself?) Remember to be careful not to trade options thinking you are trading stocks, they are worlds apart. Anyway, there are many good option trading schools around.
The nice thing about options is exactly that you have more options. If a trade goes against you quickly and you don't have a stop you can turn it into a Calender credit spread or purchase a put on it. If you want to supercharge your repair strategy then do both. The caveat here is that you use options that have sufficient time so the calender effect will work on the short side and that you don't overpay for the original option so that the repairs don't have to be very big to get you out at least whole.
I do not see actually much of a difference in a long term leap and the stock except original cost. I have a bunch of leaps on different companies that are now nearly all paid for by playing around the edges with puts and Calender Short calls.
I do not see actually much of a difference in a long term leap and the stock except original cost. I have a bunch of leaps on different companies that are now nearly all paid for by playing around the edges with puts and Calender Short calls.
When I did econometric studies on Options, I did a test on the distribution of price changes in many various stocks, and the results did not approximate the Black Scholes Model exactly. In fact, the distribution of sigma changes in stock changes is not lognormal at all -- there are many high 3.5 - 4.0 sigma plus moves in stocks.
Actually, at the end of my study, I found that, if one were to precisely use the Black Scholes model to find out if writing an option would be profitable, many times the option writer would get screwed.
Also, there is an equation that is used to determine if a stock price can surpass a certain minimum or maximum, but that standard equation, which is used in the Black Scholes model, is flawed. It basically just checks if the stock price can get to a certain point *AT* expiration. There is a much more refined equation that actually shows that a stock can get to price X *anytime* before expiration.
I also did some work with delta-normal position strategies, and using options for VEGA (tau) strategies by normalizing the delta and playing options just off volatility changes.
There are old-timers that go so far as finding the gamma of gamma, but my own research has shown that this is just a waste of time.
However, if someone has a winning strategy, all the math in the world is not going to prove them wrong.
Actually, at the end of my study, I found that, if one were to precisely use the Black Scholes model to find out if writing an option would be profitable, many times the option writer would get screwed.
Also, there is an equation that is used to determine if a stock price can surpass a certain minimum or maximum, but that standard equation, which is used in the Black Scholes model, is flawed. It basically just checks if the stock price can get to a certain point *AT* expiration. There is a much more refined equation that actually shows that a stock can get to price X *anytime* before expiration.
I also did some work with delta-normal position strategies, and using options for VEGA (tau) strategies by normalizing the delta and playing options just off volatility changes.
There are old-timers that go so far as finding the gamma of gamma, but my own research has shown that this is just a waste of time.
However, if someone has a winning strategy, all the math in the world is not going to prove them wrong.