Poll: Is understanding options easy?

[Overnight]

"My name is Overnight" has 3 votes.

Does @destriero have a fund?

Anyway, understanding options is very very very very... hard, for me. Don't think I will ever be able to derive BSM.

Yeah, he has a fund of "fuck you, I will kill you in profits".

What a silly question that was.

 

[ETJ]

The simple answer is it can be learned. It takes some folks longer than others, but there is no lack of demand for talented derivatives folks.

I would not use the commentary on this sight as a benchmark. Some of the best derivative folks on this site have simply gone elsewhere.

You won't find a well operating cash market - pretty much anywhere in the world - where there isn't a derivatives market.

 

[Wheezooo]

 

[tomorton]

In order of complexity, for private retail traders -
1. traded options trading
2. forex trading
3. CFD trading
4. binary options trading
5. spreadbetting
6. share trading

 

[gaussian]

The question should have been "is it easy to understand the concept of options"



God I fucking miss advanced calc.

I'd say yes it is. A house buying analogy is enough for someone to intuitively understand options. Imagine you wanted to buy a house but only if the new best school is built. You may try to get a contract from the home owner stating that you have the option to purchase the house on or before the date specified in the contract (the date of the opening of the school). The home owner doesn't want to do this for free, however, because they could sell the house immediately to someone less picky and the market could go down.

They charge you a premium for the privilege of holding the contract. The home owner is betting your condition (the new best school being built) doesn't happen because the city is also thinking about building the new highway. Additionally, if it does happen, they have secured a price on their home in the event it may go down. If they are right, they keep your premium and you didn't have to move in. You paid a small fee for the right, but not the obligation to purchase the house. It benefits you because you didn't want to own the house without the school being built (your kids are very talented and you only want the best for them). It benefits the home owner because not only did they collect a small sum from you for writing a contract, they protected their asset from a perceived drop in home value (maybe because the school will bring more riff raff to the neighborhood).


Of course this analogy is simple (it can also be used to describe a future with some small modification). From this analogy it's a relatively small step to understand a vertical spread, and from there combinations of verticals (iron flys, iron condors, etc). Calendars might take a little more thinking, and based on the analogy above straddles and their family of spreads should be relatively straightforward as well.

 

[Overnight]

...

They charge you a premium for the privilege of holding the contract. The home owner is betting your condition (the new best school being built) doesn't happen because the city is also thinking about building the new highway...

But what if you do not own the asset to begin with?

So if the price of the phantom object you are selling goes up, you are called on that price, and are forced to buy the asset at that higher price and then sell it at the lower price you are obligated to sell it to the person to. For.

And then there's theta, where somehow, magically, the value of your phantom asset goes up or down in value the closer you get to the time you have to load or unload your asset.

Like @ETJ says, for some folks these options bits take longer to learn. I am totally appreciating the help being given, but it is the time decay thingy that is really ripping me to shreds in understanding, plus the fact that you can get assigned the underlying. You gotta' have a lotta' cash to cover that.

 

[guru]

But what if you do not own the asset to begin with?

So if the price of the phantom object you are selling goes up, you are called on that price, and are forced to buy the asset at that higher price and then sell it at the lower price you are obligated to sell it to the person to. For.

And then there's theta, where somehow, magically, the value of your phantom asset goes up or down in value the closer you get to the time you have to load or unload your asset.

Like @ETJ says, for some folks these options bits take longer to learn. I am totally appreciating the help being given, but it is the time decay thingy that is really ripping me to shreds in understanding, plus the fact that you can get assigned the underlying. You gotta' have a lotta' cash to cover that.

A simplest approach may be to focus on trading spreads with binary outcome. Find $1 ATM spread for $0.50 that works like a blackjack bet, or $1 OTM spread for $0.25 that pays 4x as much as you put in.
Of course those will work great only if you can predict the future, but at least it’s a simple approach. And practically all option combos are made of spreads. A butterfly and iron condor are two spreads. Even a put is a spread between the strike and $0, and a call is a spread between the strike and your net worth.

 

[Overnight]

... Even a put is a spread between the strike and $0, and a call is a spread between the strike and your net worth.

This makes no sense...Isn't it the opposite?

A call is a spread between your strike and the cost you spent to buy the call, but a put is a spread between the premium collected and your net worth?

 

[guru]

This makes no sense...Isn't it the opposite?

A call is a spread between your strike and the cost you spent to buy the call, but a put is a spread between the premium collected and your net worth?

I mean when you sell a put at $100 strike then you’re selling a $100 spread because that’s how much you can lose. Buying a put at $100 strike means buying $100 spread because that’s how much you can make if the stock goes to $0. Of course you’d never cross the full width of that spread so indeed a better example would be a $1 put spread like between $99/$100 strikes that can be purchased for $0.50 near ATM, if stock price is at $99 for example, and stays there or lower at expiration.

 

[Bugenhagen]

I really struggled grasping them to a level where I felt all the spinning plates were a subconscious-competence and just specilized in Futures for two reasons.

1. If you can handle risks in Futures and have a good edge, is there a lot more money made over a year? You might have more free time, that could be invaluable but I actually like feeling like a have a "real job" and it keeps my mind fresh, perhaps that will fade in another five years.

2. I have some friends & family who are genuinely well into "gifted" IQ and they all have crashed horribly many times. Even for really bright people there are sneaky icebergs (learning opportunities ) in Options. They have made larger chunks than me sometimes but over a year, I'm well ahead.