Risk/Reward Ratio

[ironchef]

They knew the expectancy too well,they didnt know leverage well enough

I don't think those Nobel winners truly understand tail events like you, real option traders.

Leverage added more fuel to the fire.

 

[ironchef]

human nature compels us to maximize the chance of a gain instead of maximizing the size of gains -this which works against us big time.

This quote came from some famous trader, not sure who it was. The longer I trade the more sense it makes, here it is:

"You can have a 15-25% win rate at 8R & get wildly rich, but very few will ever do it because it is not comfortable. What feels the best as a discretionary trader is never going to get you the big money, it's about managing discomfort."

Best post I have read on this thread.

 

[taowave]

Leverage is one thing,but 27 to 1??

have to believe Meriwether had an some clue to the risks he took..

He was head of fomestic fixed income arbitrage at Solly..

If you have doubts,this is his current "job"..Sounds about right

"Meriwether has been an owner of thoroughbred horses for a number of years and is a member of the board of directors of the New York Racing Association (NYRA)."

I don't think those Nobel winners truly understand tail events like you, real option traders.

Leverage added more fuel to the fire.

 

[newwurldmn]

They knew the expectancy too well,they didnt know leverage well enough

they knew every Greek but one: hubris.
-you know who said this.

 

[taowave]

“There are two kinds of people who lose money: those who know nothing and those who know everything.”

they knew every Greek but one: hubris.
-you know who said this.

 

[ironchef]

Leverage is one thing,but 27 to 1??

have to believe Meriwether had an some clue to the risks he took..

He was head of fomestic fixed income arbitrage at Solly..

If you have doubts,this is his current "job"..Sounds about right

"Meriwether has been an owner of thoroughbred horses for a number of years and is a member of the board of directors of the New York Racing Association (NYRA)."

Of course. Those of us living in a glass house shouldn't throw rocks. But that is human nature, we like to pontificate:

In The Black Swan, "Consider a turkey that is fed every day," Taleb writes. "Every single feeding will firm up the bird's belief that it is the general rule of life to be fed every day by friendly members of the human race 'looking out for its best interests,' as a politician would say.

"On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief."

In that type of situation, 27 to 1 is not bad if they get out before Wednesday.

 

[taowave]

No glass houses here..I ran short vol books for major IB's and hedge funds,and have gotten caught with my pants down..

Short vol, 27 to1 leverage??

ASK and thou shall receive..Only question is when

Of course. Those of us living in a glass house shouldn't throw rocks. But that is human nature, we like to pontificate:

In The Black Swan, "Consider a turkey that is fed every day," Taleb writes. "Every single feeding will firm up the bird's belief that it is the general rule of life to be fed every day by friendly members of the human race 'looking out for its best interests,' as a politician would say.

"On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief."

In that type of situation, 27 to 1 is not bad if they get out before Wednesday.

 

[ironchef]

No glass houses here..I ran short vol books for major IB's and hedge funds,and have gotten caught with my pants down..

Short vol, 27 to1 leverage??

ASK and thou shall receive..Only question is when

Yes sir, but I was talking about me, not you. In retail, our equivalent is to write naked deep OTM calls and puts. It is so easy, regularly generate good income and the risks are so overwhelming in our favor.

I had my Wednesday before Thanksgiving moment. Fortunately it was early in my options trading career. I was in the group that knew nothing.

 

[taowave]

I think we have all been there,the question is how big and who's money

Yes sir, but I was talking about me, not you. In retail, our equivalent is to write naked deep OTM calls and puts. It is so easy, regularly generate good income and the risks are so overwhelming in our favor.

I had my Wednesday before Thanksgiving moment. Fortunately it was early in my options trading career. I was in the group that knew nothing.

 

[oraclewizard77]

A win % of 55% or higher on EQUAL risk vs reward means you have an EDGE. If you have a win% lower, then you can still have an EDGE, but your reward must be higher or double.