My option trades for the past 6 months, feel free to ridicule, or offer guidance

[OddTrader]

Quote from OddTrader:



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?

Options, imo, besides its hedging functinality can be used for trading in two main categories: Volitility trading, and Directional trading.

In volitility trading, since sellers doesn't need an edge to win, that means options have provided sellers an edge, a natural one; while they concurrently provide a negative edge to buyers.

In directional trading, options do not provide any edge to sellers; while they still provide a negative edge to buyers.

That's why buyers find much much difficult for them to win in directional trading, as well as extremely slim chance to win in volitility trading.

My 2 cents.

 

[OddTrader]

Quote from spindr0:

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?

Of course , that's your edge, which is not provided by options.

Quote from spindr0:



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?

Selecting a stock to play a certain strategy may not be an edge, but determining timing of playing options with stocks (any one) is definitely an edge.

Quote from spindr0:

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.

Yes, you're right. I wrote the opposite of what I thought.

Quote from spindr0:



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.

Agree.

 

[Johno]

Quote from guy990opl:

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.

The elusive quest on ET to find a definition for edge!
Just like asking a wymin's group to define Feminism, every one present will have a different definition!

IMHO there is no inherent edge in buying or selling options unless you can achieve a lock, if the profit cannot be quarantined then you are not assured of anything. Everything else requires additional conditions to be achieved. Time as an edge - you've sold naked puts (lots of time) that are now in the money and continuing to increase in value, is time value still an edge?

On the sell side time is potentially an advantage
On the buy side leverage is potentially an advantage ( used correctly I would say an enormous advantage)

Because nothing in the future is assured it is unrealistic to assume an advantage.

Except in specific cases such as locks the only edge's to be found will be within yourself!

Regards

Johno

 

[xflat2186]

Quote from OddTrader:

Options, imo, besides its hedging functinality can be used for trading in two main categories: Volitility trading, and Directional trading.

In volitility trading, since sellers doesn't need an edge to win, that means options have provided sellers an edge, a natural one; while they concurrently provide a negative edge to buyers.

In directional trading, options do not provide any edge to sellers; while they still provide a negative edge to buyers.

That's why buyers find much much difficult for them to win in directional trading, as well as extremely slim chance to win in volitility trading.

My 2 cents.

What natural edge is there in selling? Unless the option is mispriced then the premium you recieved in return for the risk is fair value and thus no edge.

 

[guy990opl]

As spindr0 wrote we can talk about this for a long time, however I specifically disagree with you when it comes to buying/selling options.

If the SPY index is selling at $87 and I sell a 2-3 months OTM naked puts at $67 there is an edge.

I will make a bit of money if the index:

1) goes higher
2) goes a bit lower
3) stays the same

I lose if: 4) it goes down a lot at least more than $67

and last but not least there are also traders who sell cash secured puts and they will be OK with being assigned shares of SPY at $67 or less.

Will it make money? No one knows what the market will do but 3 out of 4 cases the trade makes a bit of money.

Also don't forget that if you do have a profit on the premium, say 50% you could close the trade sooner than the expiration date. If SPY goes down like crazy you still have the ability to get out at a loss by placing a GTC order since it is very liquid. I am not really saying to sell SPY puts, just trying to define what is an edge...a probability to make money that is higher than 50%, while you manage your risk.

I have no idea how you can find an edge "within yourself" but if you can, great !

Quote from Johno:

The elusive quest on ET to find a definition for edge!
Just like asking a wymin's group to define Feminism, every one present will have a different definition!

IMHO there is no inherent edge in buying or selling options unless you can achieve a lock, if the profit cannot be quarantined then you are not assured of anything. Everything else requires additional conditions to be achieved. Time as an edge - you've sold naked puts (lots of time) that are now in the money and continuing to increase in value, is time value still an edge?

On the sell side time is potentially an advantage
On the buy side leverage is potentially an advantage ( used correctly I would say an enormous advantage)

Because nothing in the future is assured it is unrealistic to assume an advantage.

Except in specific cases such as locks the only edge's to be found will be within yourself!

Regards

Johno

 

[Johno]

Quote from guy990opl:

As spindr0 wrote we can talk about this for a long time, however I specifically disagree with you when it comes to buying/selling options.

If the SPY index is selling at $87 and I sell a 2-3 months OTM naked puts at $67 there is an edge.

I will make a bit of money if the index:

1) goes higher
2) goes a bit lower
3) stays the same

I lose if: 4) it goes down a lot at least more than $67

and last but not least there are also traders who sell cash secured puts and they will be OK with being assigned shares of SPY at $67 or less.

Will it make money? No one knows what the market will do but 3 out of 4 cases the trade makes a bit of money.

Also don't forget that if you do have a profit on the premium, say 50% you could close the trade sooner than the expiration date. If SPY goes down like crazy you still have the ability to get out at a loss by placing a GTC order since it is very liquid. I am not really saying to sell SPY puts, just trying to define what is an edge...a probability to make money that is higher than 50%, while you manage your risk.

So is it safe to say - virtually anything that offers better than 50% chance of success would be considered an edge based on this post? As what you mention appears to be externalities similar to the ones I already mentioned?

Regards

Johno

 

[guy990opl]

Everyone is different. People might have a lot of different edges so there might be as many edges as people. But it is safe to say that having a high probability to make money and managing risk is a better edge then the edge "within yourself".

 

[Johno]

Quote from guy990opl:

Everyone is different. People might have a lot of different edges so there might be as many edges as people. But it is safe to say that having a high probability to make money and managing risk is a better edge then the edge "within yourself".

Would you care to define what you consider the term "edge within yourself" means?

Regards

Johno

 

[guy990opl]

I tried to give a definition of what I consider an edge when dealing with options. The edge "within yourself" is actually what YOU wrote when you first replied to my post. I was hoping you could define that, I have no idea what you are talking about.

Quote from Johno:


[...] Because nothing in the future is assured it is unrealistic to assume an advantage.

Except in specific cases such as locks the only edge's to be found will be within yourself!

Regards

Johno

 

[Johno]

Quote from guy990opl:

I tried to give a definition of what I consider an edge. The edge "within yourself" is actually what YOU wrote when you first replied to my post. I was hoping you could define that, I have no idea what you are talking about.

Quote from guy990opl:

Everyone is different. People might have a lot of different edges so there might be as many edges as people. But it is safe to say that having a high probability to make money and managing risk is a better edge then the edge "within yourself".

Please note I'm not trying to be confrontational, I'm just curious!

Please read your comments, the first is directly above and then read your last post, far top and see if you can discover the inconsistancies! This was actually one of the points I was trying to make.
How can someone say - " But it is safe to say that having a high probability to make money and managing risk is a better edge then the edge "within yourself".", whilst also acknowledging that they have absolutely no idea what I'm talking about when I refer to an " edge "within yourself".

I would be interested to see your reply!

Regards

Johno