risk--- now a bad word??

romik · Jun 19, 2006

Quote from marketsurfer:

this was inspired by the conversation on the niederhoffer thread:

since when has RISK become a bad word for traders/speculators? i can see the "nanny/big brother be safe" cultural meme has infected all segments of the population, even the supposed entrepreneur/risk taking class--whom i thought made up the majority of participants on elite.

what seems to missing in this discussion is that risk is required to make outsized returns. yes, a manager can plod along making average/above average returns for years and years with what is considered a good sharpe. however, if you want this--buy a mutual fund--its safer.

most people invest with hedge funds to achieve outsized returns and accept the risks involved. remember, we are dealing with high net worth individuals/institutions who allocate their substantial capital across a spectrum of managers/risk profiles--- these investors understand that without risk there can be no great reward. there is no free lunch.

surfer

out-sized ROI is for multi millionaires or under-capitalised gamblers, for the majority of us safe trading systems generating steady ROI is the only way forward. I have seen it so many times when the most safe set-up is reversed with such a strength/momentum that one might not have enough time to shout out - "Oh SHIIIIIIT!" and that over-leveraged position is blown. So what's the point? Don't forget that the majority on ET are not extremely well capitalised individuals and they will love the idea of hitting a big winner, though will probably never actually risk that much and if they do/did I am certain they will never attempt doing it again.

EDIT: In principle I might agree with you that the ones that don't risk will not be drinking champagne (Dom Perignon of course)

marketsurfer · Jun 19, 2006

Quote from romik:

out-sized ROI is for multi millionaires or under-capitalised gamblers, for the majority of us safe trading systems generating steady ROI is the only way forward. I have seen it so many times when the most safe set-up is reversed with such a strength/momentum that one might not have enough time to shout out - "Oh SHIIIIIIT!" and that over-leveraged position is blown. So what's the point? Don't forget that the majority on ET are not extremely well capitalised individuals and they will love the idea of hitting a big winner, though will probably never actually risk that much and if they do/did I am certain they will never attempt doing it again.

EDIT: In principle I might agree with you that the ones that don't risk will not be drinking champagne (Dom Perignon of course)

hi,

thanks, i agree with the edit.

my question is:why trade then? why not just purchase mutual funds?

thanks,

surf

2cents · Jun 19, 2006

1) to be in control, 2) to earn the huge (legal) kickbacks in the form of commissions, mark-ups or the like, associated with one's trading volume... instead of giving them away to the mostly useless mutual fund guys who have little incentive in making you serious money anyway... also, they wouldn't be set up as a mutual fund if they were any good...

clear enough?

riskarb · Jun 19, 2006

Some like to delude themselves into believing they can safely write cheap gamma many deviations otm while taking comfort in the probability of profit. The same tend to buy into the belief that they are great traders based on the ability to generate large absolute returns based solely on a passive short gamma strategy made possible by risk-based haircuts available in index futures options.

Selling otm stops requires less skill than screwing in a light bulb.

marketsurfer · Jun 19, 2006

Quote from 2cents:

1) to be in control, 2) to earn the huge (legal) kickbacks in the form of commissions, mark-ups or the like, associated with one's trading volume... instead of giving them away to the mostly useless mutual fund guys who have little incentive in making you serious money anyway... also, they wouldn't be set up as a mutual fund if they were any good...

clear enough?

now i am even more confused!

retail traders earn huge kickbacks?? not any who i know.

are you talking about high volume rebate trading with a professional firm?? if so, that was certainly not who i was addressing with my comments.

surfer

2cents · Jun 20, 2006

dude - who says i or a couple of posters you've not-so-thoughtfully replied to are 'retail'? also, wisen up, rebates, mark-ups etc are not just sthg you only find at prop firms... there are quite a few ways to 'extract' those type of fees legally... and thats not small... obviously makes no sense if your only trading your PA, but if PA + OPM...

do you trade? retail-type? just curious...

aradiel · Jul 10, 2006

Quote from horribilicus:

What baloney. To quote a recent poll, what moronic baloney. The safest way to trade (from the standpoint of minimizing 1987 style crash risk) is to buy options or option spreads. Just make sure you are "long the wings" as Charles M. Cottle says and your risk will be strictly limited. Guaranteed limited risk. The S&P could gap down to ZERO and you wouldn't be hurt badly. You could invite Victor Niederhoffer to (verb) your (noun) as blood flowed in the streets.

Interesting, but you are talking more about 'value at risk' than the quantification of the risk itself.

nononsense · Jul 11, 2006

Quote from scalper21:

He has a Doc from University of Chicago. I do not.
He has millions. I do not.
He has a big vocabulary. I do not.
He still is a gun slinger!!! I am not!!!

Remember what strategy destroyed his account in 1997. He sold naked puts on S&P 500 futures. What position made money in the last three years, but got crushed in May? Naked put sellers!!!

He must have skipped classes in Chicago when they were talking about them naked puts.