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

Quote from OddTrader:

My Dear Friend: If you can identify a trend with great certainty, why not Buy options instead of sell them!
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Hi Odd,

Writing options would have to be one of the hardest ways to make an easy buck! Options are priced close to fair value in all timeframes due to supply and demand.

Having speculated on both sides of the fence I now favor the long side as the RR is far better and positions are easier to protect.

Regards

Johno
 
Quote from Johno:

Hi Odd,

Writing options would have to be one of the hardest ways to make an easy buck! Options are priced close to fair value in all timeframes due to supply and demand.

Having speculated on both sides of the fence I now favor the long side as the RR is far better and positions are easier to protect.

Regards

Johno
More...

Shorting options is of no interest to me, too advance and complex.

Having done enough (almost) research, I've determined to play long options without regret, because I would never like those Greeks (except Ms Delta)! :)

http://tbn3.google.com/images?q=tbn...edia.org/wikipedia/en/b/b1/Delta_US_Cover.jpg
 
Quote from OddTrader:

Shorting options is of no interest to me, too advance and complex.

Having done enough (almost) research, I've determined to play long options without regret, because I would never like those Greeks (except Ms Delta)! :)

http://tbn3.google.com/images?q=tbn...edia.org/wikipedia/en/b/b1/Delta_US_Cover.jpg
More...

Hi Odd,

Playing with Delta looks like it could be a lot of fun!

At some point you will realize the advantage a reasonable handle on the Greeks will give you. Up front, I have a reasonable handle on option behavior but certainly nothing like some of the options scholars floating around debating the often obscure mathematical intracacies etc. If you are like me, a hands on person, hands on level will suit your purpose. By understanding the relationships associated with options particularly time and risk and volitility you will be streets ahead! Over/ under priced is not a major concern for retail speculators as the options are usually priced close to fair value. Also you won't see too many retail people looking for arbitrage opportunities as their costs would be prohibitive.

Good luck in the journey

Johno
 
Quote from Johno:

Hi Odd,

Playing with Delta looks like it could be a lot of fun!

At some point you will realize the advantage a reasonable handle on the Greeks will give you. Up front, I have a reasonable handle on option behavior but certainly nothing like some of the options scholars floating around debating the often obscure mathematical intracacies etc. If you are like me, a hands on person, hands on level will suit your purpose. By understanding the relationships associated with options particularly time and risk and volitility you will be streets ahead! Over/ under priced is not a major concern for retail speculators as the options are usually priced close to fair value. Also you won't see too many retail people looking for arbitrage opportunities as their costs would be prohibitive.

Good luck in the journey

Johno
More...

Thanks!
 
Quote from Johno:


Writing options would have to be one of the hardest ways to make an easy buck! Options are priced close to fair value in all timeframes due to supply and demand.

Johno
More...

What does the "fair" or "right" price matter when selling options? It is just because you are looking at selling the options all wrong. You are not selling the option, you are selling the premium not the option. When you look at it that way, its easier to see what are you doing when you are a seller.

However, this is what makes the markets so great, we all need each other, you need sellers, I need buyers. It all works out.
 
Quote from mike007:

What does the "fair" or "right" price matter when selling options? It is just because you are looking at selling the options all wrong. You are not selling the option, you are selling the premium not the option. When you look at it that way, its easier to see what are you doing when you are a seller.

However, this is what makes the markets so great, we all need each other, you need sellers, I need buyers. It all works out.
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I was referring to arbitrage opportunities!
I am selling the right to -whatever conditions- for a specified time - for a premium (cash value) so as far as I can tell I'm selling an option!

Regards

Johno
 
Quote from OddTrader:

According to Trester (in Chaper 18 of The Compleat Option Player) of The Institute of Options Research, the Advantages of Naked Options Writing are summarised (with 3 pages for detail explanation) as follows:

"
1. The potential rewards are outstanding.
2. The odds of winning are strongly in the writer's favor: A. He does not require that the underlying stock price moves to make a profit; and B. He is continuously making a profit as the option shrinks in value with passing time.
3. Success does not depend on predicting stock price behavior.
4. The theoretical and academic arguments supporting naked options writing are excellent."
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The information above is irresponsible and misleading IMO. While what is written above is not necessarily incorrect as stated, it doesn't compare the reward to risk as one loss can wipe-out many many wins.

My definition of “edge”:

After completing a statistically valid number of transactions, the gains of my successful transactions exceed the losses of my unsuccessful transactions.

If I cannot prove the above to myself then I have no reason for making any investment.

Realize that it takes a lot more transactions to prove a strategy that takes in a dime but can lose a dollar or more when things go wrong. Such a strategy will have many “winners” but the one or two that go wrong can create major damage to your bankroll. There are many stories of those that have tried this and suffered very bad results because the time does come when you cannot “manage” the risk.

Here is my game plan (without specifics) for a short-term strategy that I use. I look for a certain set of criteria that has produced a price change in my favor 60% of the time. I then set-up my trade with an approximately 1:1 risk to take advantage of this expectation. When I put the trade on I have no idea if it will be successful or not but my history “proves” to me that it will be successful about 60% of the time and therefore I show a profit after many trades. This is my “edge”.

Joe.
 
Quote from u21c3f6:

While what is written above is not necessarily incorrect as stated, it doesn't compare the reward to risk as one loss can wipe-out many many wins.
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That's possible, I think.

Do you know whether usually an options broker will automatically take required action in order to avoid unlimted loss, just in case? Or the trader's loss is (legally?) limted to his account funds? If yes, that would be a good gambling way!

Quote from u21c3f6:


Here is my game plan (without specifics) for a short-term strategy that I use. I look for a certain set of criteria that has produced a price change in my favor 60% of the time. I then set-up my trade with an approximately 1:1 risk to take advantage of this expectation. When I put the trade on I have no idea if it will be successful or not but my history “proves” to me that it will be successful about 60% of the time and therefore I show a profit after many trades. This is my “edge”.

Joe.
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Yes, this kind of events trading (say) with long straddles can have fairly high profitable probability.
 
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