I agree with MM. Also it silly to talk about "a trade". Talk about a set of 50 trades and 50 sets of 50 trades, then it gets meaningful. Single trades are noise. So get an edge over 100's of trades. That is what you want, not a single trade with an edge.
Risk/Reward and Probability of Winning
- Thread starter BMK
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I agree with MM. Also it silly to talk about "a trade". Talk about a set of 50 trades and 50 sets of 50 trades, then it gets meaningful. Single trades are noise. So get an edge over 100's of trades. That is what you want, not a single trade with an edge.
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And just because its generally true/hi probability trade= small gain;
small gain can also come from simply taking profits way too soon.
I like some small profits/ but good thing/ the markets can trend better than that+ do trend better than that.
why would you trade when you have no edge? That doesn't make any sense to me? When you're selling premium you're either trading stat vol vs IV or you find your dosh somewhere on the skew or term structure.
Just slapping on an option where you KNOW you don't sell IV that's too high or buy it when it's too low is completely insane. You don't maximize payoff by trading delta, hammer that into your brain. If you sell IV=80% while realizing 80% stat vol via gamma and you show a profit, well my friend, you made these profits by trading the underlying.
So why put on an options trade at all?
An options trade makes sense if you're like "well, I think 25 delta call IV is 15% over 25 delta put IV and usually it's only 3%, so I will sell calls, buy puts and hedge the delta. My theoretical edge is 12% and when call IV trades lower I make 12x my call vega figure profit.
To realize that profit, I have to make sure to stay delta neutral and not to piss away anything with vanna or gamma going against me. If it then trades towards my short strikes, I can proceed to buy higher strike calls to lock in a free butterfly and enjoy some bleed."
But you have to get your vol estimate right. If you just slap on a risk reversal for the sake of it and because it looks nice, then you're doomed
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[QUOTE="MrMuppet, post: 5335909, member: ....... hammer that into your brain. If you sell IV=80% while realizing 80% stat vol via gamma and you show a profit, well my friend, you made these profits by trading the underlying.
So why put on an options trade at all?[/QUOTE]
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Good read + good profit MM.
And one trade [ '' a trade'' ] does not mean much @ all. Unless that one trade proves what is likely to happen with 100 trades. Or 20 years worth of trades.
Even more so in 1st quarter + last quarter, for good tech trending ETFs.
So why put on an options trade at all?[/QUOTE]
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Good read + good profit MM.
And one trade [ '' a trade'' ] does not mean much @ all. Unless that one trade proves what is likely to happen with 100 trades. Or 20 years worth of trades.
Even more so in 1st quarter + last quarter, for good tech trending ETFs.
The risk/reward can sometimes appear very rewarding. Though I never got involved with the GME wild swing, I did watch it closely. When GME swung down from $350 to about $50, 1 week out $10 puts we're selling for over 2% premium with about 7 trading days to go. I got my friend to invest/sell in that because I thought it was a huge reward/risk situation. I felt GME had a hard time dropping below $10 during normal times, but now the chance was almost non existent because there must've been so many reddit buyers waiting for it to drop to $20 so they can say "WE" or that they helped prop it up, lol.
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It is such a great topic. I was just having this conversation with a trader that other day. He likes to use leverage and wondered if it is okay. (Generally I would say get so you are consistent and profitable before you add leverage.)
My end conclusion was if you have a plan, you plan each trade, you are okay with the possible loss, and are fully aware of what it is, then that is great. And. . . if you have a tested winning percentage where you know overall you will be profitable, then you are good.
It is all just a numbers game. If you know what they are (gain/loss size and winning percentage) and you are willing to take your losses and follow your plan, you are good. You don't need perfect numbers.
(I did know a trader in San Diego who had a 90% of higher record for winning trades, so it isn't impossible.)
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Most people use leverage in real estate + have a hi win%;
but 100 % of foreclosures come from leverage. I remember one property i sold @ loss + good riddance \actually the REALTOR suggested i not buy that property/LOL
I like leverage sometimes; but it requires a precision\ cash markets dont require that precision.
Amazing trader M Marcus made millions in trading; + said he lost 100% of his real estate trades/investments. Said it was his emotions.
Easy.
Ultra High-IV (>150%) bull call spreads. Sell ATM and buy ITM. 3 months out +.
You can buy the spread for less than 50% of the total ITM expiry value AND by definition, it has a greater than 50% chance of winning because of the setup.
Works better with underlying below $10 for some reason.
Yeah I disagree. If you can't find favorable trades, then you're no better than an uninformed newbie. What is implied from the original quote is that either it's from someone who doesn't want to divulge how things really work, or his personal method has no tangible advantage and he made the false assumption that everyone else can do no better.
From my perspective, you need to have a clearly define-able edge, to achieve high win rate + great reward/risk spots. It took me more than 10 years to figure it out. Oh and you don't need to trade options to realize positive convexity in your P&L, just have a good position management plan before you put trades on.