My Conclusions

[luh3417]

Quote from IV_Trader:

you never mentioned how good is your edge , maybe the problems starts right there ? BTW , 90% of options expire worthless is a myth , NOT on a dollar weighted bases they don't.
Good luck

Yes, my edge was not so hot, so leveraging it with options was not productive.

I regret perpetuating that myth. Would like to see an analysis of the dollar weighted expectation. Found some interesting papers here but I don't think I ever knew enough math to read them...
http://www.math.nyu.edu/research/carrp/research.html

http://www.people.hbs.edu/jcoval/Papers/OptionReturns.pdf

http://www.fenews.com/fen43/capital-notions/capital-notions.html

 

[rosy]

next time you want to do an option trade contact me via yahoo chat. I will try to post a higher bid and lower offer for you to hit.

My ID is "makebidoffer"

 

[IV_Trader]

Quote from luh3417:

Yes, my edge was not so hot, so leveraging it with options was not productive.

I regret perpetuating that myth. Would like to see an analysis of the dollar weighted expectation. Found some interesting papers here but I don't think I ever knew enough math to read them...
http://www.math.nyu.edu/research/carrp/research.html

http://www.people.hbs.edu/jcoval/Papers/OptionReturns.pdf

http://www.fenews.com/fen43/capital-notions/capital-notions.html

great info , thanks for the links

 

[daddy'sboy]

Quote from luh3417:

Yes, my edge was not so hot, so leveraging it with options was not productive.

I regret perpetuating that myth. Would like to see an analysis of the dollar weighted expectation. Found some interesting papers here but I don't think I ever knew enough math to read them...
http://www.math.nyu.edu/research/carrp/research.html

http://www.people.hbs.edu/jcoval/Papers/OptionReturns.pdf

http://www.fenews.com/fen43/capital-notions/capital-notions.html

This begs the following question:
How much option knowledge/understanding, mathematical models etc. does one need to trade options successfully? Iow, does one have to be as good as Victor N or is it sufficient to just know, say, money management and greeks and one's own personality?
Oops, I think I just answered my own question.
Daddy's boy

 

[fader]

Quote from luh3417:


I regret perpetuating that myth. Would like to see an analysis of the dollar weighted expectation.

here's my guess: most of the volume is typically in ATM options - the probability of ATM expiring in the money is the probability of a move of over 1 standard deviation before expiration, i.e. (1-0.68) / 2 = 16%, assuming standard normal distribution.

this percentage would be lower for OTM options but higher for ITM options, however ITMs have much lower volume.

since ATM options have higher value than OTMs, then i'd expect this percentage to be weighted toward the 16% number.

not 100% certain that my math is right.

 

[IV_Trader]

Quote from daddy'sboy:

This begs the following question:
How much option knowledge/understanding, mathematical models etc. does one need to trade options successfully? Iow, does one have to be as good as Victor N or is it sufficient to just know, say, money management and greeks and one's own personality?
Daddy's boy

very good question , daddy. IMO , atleast advanced greeks and then all effort on variables accuracy ( price or volty direction)

 

[fader]

also, i can't understand why people buy options as a directional play - buying options is a volatility play, i.e. the direction can go your way but you still won't make money unless the actual volatility is greater than the implied volatility purchased (assuming holding until expiration).

i think selling options is more of a directional play because you always get paid if the underlying moves in your favor by expiration (ignoring volatility issues etc.).

 

[daddy'sboy]

Quote from fader:

also, i can't understand why people buy options as a directional play - buying options is a volatility play, i.e. the direction can go your way but you still won't make money unless the actual volatility is greater than the implied volatility purchased (assuming holding until expiration).

???
That doesn't make any sense. The pricing models make that fairly clear, surely.
For example, what about buying a simple call when iv is low. Then the next day underlying moves up, say 0.5% with no change in iv. You thus make money on your long call. And also, why on earth would you hold a long until expiration when all your extrinsic value has been sucked out of it?
Daddy's boy

 

[daddy'sboy]

Quote from fader:



i think selling options is more of a directional play because you always get paid if the underlying moves in your favor by expiration (ignoring volatility issues etc.). [/B]

You're funny!
You can't ignore volatility issues when you sell options and then turn around and look at volatility issues when buying options. Volatility is always an issue.
Daddy's boy

 

[luh3417]

IMHO, volatility plays are really just, speculating on the direction of volatility. There's nothing magic about volatility; unless you try to neutralize as many greeks as much as is reasonable, you are speculating. Maybe you have an edge that empowers you to speculate... only time will tell. I agree that one should well understand the greeks, but how many of you actually actively manage them? Its great in theory but its impractical for retail traders isn't it?

I did find another source which states "Since put and call options have been trading, eighty percent (80%) of all options expire unexercised". Maybe this is not that important, since its an efficient market and you can play either side.

Anyway, my main point is that, if you want to speculate, admit it, and get on with it, possibly using the technique outlined in my original post. BTW, my INTC call seems to be doing pretty well since that original post.