My option trades for the past 6 months, feel free to ridicule, or offer guidance
- Thread starter thebubs
- Start date
Thanks Xflat.
1.
OK.
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imo, trading the underlying needs to be good, an edge, in both its direction and timing. Trading long options requires only timing to be good, also an edge. Trading short options does not need any edge at all. Comemnts?
3.
OK.
4. imo, normally trading long options instead of the underlying would degrade overall performance, due to high premiums (to pay for limiting risk) and poor strategy design, basically no additional edge.
However, sometimes trading long options instead of the underlying can possibly improve overall performace, providing the cost-effective strategy is a really good one (equally limiting risk or even better), obviously an extra edge. Any views?
1.
OK.
2.
imo, trading the underlying needs to be good, an edge, in both its direction and timing. Trading long options requires only timing to be good, also an edge. Trading short options does not need any edge at all. Comemnts?
3.
OK.
4. imo, normally trading long options instead of the underlying would degrade overall performance, due to high premiums (to pay for limiting risk) and poor strategy design, basically no additional edge.
However, sometimes trading long options instead of the underlying can possibly improve overall performace, providing the cost-effective strategy is a really good one (equally limiting risk or even better), obviously an extra edge. Any views?
I'm a bit confused as to what an edge is, at least in the context of what I read on ET.
I believe that I have an edge with my equity trading system (not talking options) It makes consistent returns (strategy) and has modest draw downs (risk). How is that not an edge?
Vis a vis options, I have no issue with buyer versus seller but if one can select stocks that go up (or down) in a certain time frame, that would seem to be an edge to me. How is it not?
In my opinion one has an edge when the probabilities to make money are more than 50%. Of course the probabilities to make money keep on changing every day as price does, but the moment I sell an OTM option the probabilities are in my favor. That of course does not mean that I will make money, but it is a good starting point.
It is also my personal opinion that there is an edge in selling options Vs buying options, no one can stop the slow but steady march of time.
It is also my personal opinion that there is an edge in selling options Vs buying options, no one can stop the slow but steady march of time.
I think you have that reversed. Trading the underlying (equities) only needs direction to be correct in order to profit. Timing isn't an iissue since the underlying doesn't decay. A long option needs both.
Short option trading requires the avoidance of one direction. The other is OK and benefits from non direction.
On a quid pro quo basis per round lot, a long option is going to underperform (not talking about ROI which can be severely distorted). I'm not sure that I'd say that it's due to high option premiums per se. I think it's more a result of higher slippage, time decay and less than 100 delta gains and the only way to offset and outperform that degradation is the leverage that options offer. I'm giving IV change a pass since it can help or hinder, depending on its direction.
I don't know. We have a recently departed former ET memeber whose cookie cutter approach to selling premium as much as 30% OTM during a bear market proved to be disasterous, particularly with choices in the hardest hit sectors. So tho the probabilities of loss were low, the damage was high.
I have a feeling that this is going to be one of those round and round we go discussions...
My two cents is that the edge is what the player brings to the table. Appropriate strategy selection for the market environment), good timing and good money management when the timing is bad. And if someone insists that's not an edge, no problem. Call it whaatever you want but if you want to last in trading, let alone make money, you need them.