Was the 90k loss in your country's currency as well?
If it was U.S. dollar HowTF did you do that?
Picking up pennies in front of a steamroller: a short tale
- Thread starter bbt80
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If it was U.S. dollar HowTF did you do that?
90,000 US dollars!
As I said, I was trading 500 contracts (I think the number is 50 actually... idk, it was almost 5 years ago) in a +$200k account, with a "mental" stop loss.
As a mathematician, today I know what happened: sometimes prices "jump" between levels. In theory it's called jump diffusion. In practice, it means "it can't be right! I'll add to this position and when prices come back I'll have the last laugh"
. Prices do come back, almost surely... in theory... I know it because I'm smart .It was surreal. CL is a beast! I knew it was a directional market, but I was making money in pullback days too. My longest winning streak was 22 days! I was invincible, it can't be just coincidence, right?
Wrong!
Since you wanna talk academically, here is something for you to chew on.
First of all, It's very possible that the we overestimate how heavy the tails are because there are two components at play, stochastic volatility and non-normality of the distribution. The general idea is that if you rescale the forward looking return distribution by the markets expectation of volatility, the skewness and kurtosis diminish significantly (though do not really disappear completely).
Second of all, the option market exists because of the laws of supply and demand. It existed before risk-neutral pricing was a thing, it exists in the spaces where risk neutral pricing is impossible etc. People hacked Bachelier model and now they hack Black Scholes model (or rough vol model, whatever) - in the end, these models are just interpolation and risk-management tools.
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I know it's a rhetorical question (right?), but yes I felt like a lotto winner (in the end).
If I had made those $50k in my options portfolio, I'd think that I was just doing the right thing (cause and effect illusion).
Just another point. If you are picking up pennies in the middle of the road and there are corpses of prior fortune seekers lying about, that should tell you something, no?
Excellent answer! I'm still trying to digest the "rescaling the forward looking return..." (Could you elaborate it, please?), but everything you wrote sounded good (my bull sh*t detector didn't activate
).Just for clarification (as I said in another post), I usually talk "academically" because that's my approach (I'm not a trader), and I want to avoid things like "the trend is you friend", "buy low, sell high" and other heuristics (right or wrong, it's an empty discussion, IMO).
I know I suck at Economics (and at common sense reasoning lol)... you're right about the "supply and demand". I was talking about the existence of the moments of the underlying distribution of returns (some assumptions may result in infinite option prices), but I'm thinking backwards.
I'm gonna look for other insights from you answers from now on, thanks!
Lazy answer (but a sincere one): survivorship bias.
it's what you keep that matters.
A "mental" stop that you perhaps moved once or twice or ten times?90,000 US dollars!
As I said, I was trading 500 contracts (I think the number is 50 actually... idk, it was almost 5 years ago) in a +$200k account, with a "mental" stop loss.
As a mathematician, today I know what happened: sometimes prices "jump" between levels. In theory it's called jump diffusion. In practice, it means "it can't be right! I'll add to this position and when prices come back I'll have the last laugh"