Niederhoffer's year end contest! ($2500 prize for 3 best 2011 trading ideas)

Quote from 1prometheus:

Thoreau, thank you for offering your perspective on options trading. I have traded futures for about 12 years but have never traded an options contract.

With futures (a simple directional play) I can visualize or conceptualize the types of market dynamics that can create an edge over a few hours to a few days, and I have been able to utilize backtesting to clarify my strategies.

I have never traded an options contract because I am not able to "get my hands" around them well enough to make what I think would be an intelligent approach.

For example I was aware of one of the trading edges you mentioned in a prior post but implement it via a simple directional play.

What is the dynamic in options trading that creates an edge beyond directional positioning? I can understand attempting to take advantage of time decay, yet I do not see the beyond where one gets an edge from this rather than just a % winner.

It could lack of data, but even here before I approached Data with futures trading I had already developed a number of useful mental models or hypothesis that prevented blind groping.
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Dear 1prometheus,

You definitely exhibit a keen understanding. There is really no true "edge" that is implicit in options trading for the typical retail investor. I like how you realize that being positive theta is not a true edge nor does it lead to a positive economic expectation in of itself.

For being long theta comes at the expense of a very real and very nasty gamma exposure that can and will blow up in your face. Selling cheap gamma can be a very dangerous strategy, and I have endured many painful trades doing this very strategy. Also, trading for cheap credits can reveal how a sudden sharp rise in volatility can completely devastate a series of small winners.

For example, receiving credits via a put spread does have its synthetic equivalent (put/call parity). So how should one trade? It often is also related to your personality and style of trading. As you correctly stated, you will have a higher % number of winners selling cheap gamma, but your losers will be much more painful.
 
That is some good stuff! A small vacation for two to Vegas maybe?

I wonder what he will do with the submitted ideas. If they're so good why would the person who thought of them give them away?
 
Quote from stopnlimits:

That is some good stuff! A small vacation for two to Vegas maybe?

I wonder what he will do with the submitted ideas. If they're so good why would the person who thought of them give them away?
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:D

Because ideas are worthless without capital
 
Quote from stopnlimits:


I wonder what he will do with the submitted ideas.
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You do realize that the value of the idea won't be known until TIME tells us...?
 
barely break even according to this

z
 
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