Don't get me wrong. I'm not trying to lecture the guy and I'm not even interesting in discussing whether or not he will blow up or make money. I use to debate that stuff years ago on here. You can do a search on the archives. I go back a few years. LOL. I'm simply trying to debate whether he even understands what an option is. The guy could be worth 500 million for all I know. That's besides the point. He basically has no concept of what an option is in it's most simplistic state. This is big problem for most traders and not even just option traders but even stock and futures traders. They are making analytical decisions everyday without the analytics. LOL. It's really no different then the guy shorting the market because "it's up too much". I'm just trying to get people on here to think about what they are doing. An old teacher of mine use to say, if you can't put in words what you are trying to do, then you don't understand what it is you're trying to do. That can be very dangerous for a trader.
Seeking advice on writing (and covering) short options
- Thread starter noregrets
- Start date
Don't get me wrong. I'm not trying to lecture the guy and I'm not even interesting in discussing whether or not he will blow up or make money. I use to debate that stuff years ago on here. You can do a search on the archives. I go back a few years. LOL. I'm simply trying to debate whether he even understands what an option is. The guy could be worth 500 million for all I know. That's besides the point. He basically has no concept of what an option is in it's most simplistic state. This is big problem for most traders and not even just option traders but even stock and futures traders. They are making analytical decisions everyday without the analytics. LOL. It's really no different then the guy shorting the market because "it's up too much". I'm just trying to get people on here to think about what they are doing. An old teacher of mine use to say, if you can't put in words what you are trying to do, then you don't understand what it is you're trying to do. That can be very dangerous for a trader.
<<< WHAT are you predicting? Good lord, we keep going around and around in circles here. What EXACTLY are you predicting when you initiate this trade? And like Denzel Washington use to say, explain it to me like I'm a 5 year old. And why are you even using the word probability after you demonstrated that you did not even understand how probability even works with options. So let me ask my 2nd question. How EXACTLY are you determining the trade is high probability? Again, like I'm a 5 year old. >>>
This is really not very complicated.
I am predicting the TRADE will expire above my strike and/or has the ability to "recover" if it drops below.
And I am basing it on my analysis of all the variables that make up my trade.
My analysis of all the criteria that make up all those variables, is what determines whether the trade has a high or low probability of succeeding.
(Strike, % otm, tech support, price value, stock/sector stability, financial health, earnings date release, news, insider trading, length of contract, recovery potential, its a long list.....
Do you really find this too confusing to follow?
I don't base my probability analysis on some silly concept of, studies show via "statistical variance", that says the likehood of a stock dropping more than 6% per unit of time is blah blah blah.
That is way to lazy, simplistic, and generic an analysis for me.
<<< Credit spreads CAN'T be overvalued! They are a relative value trade. Since you are selling one option and buying another. You don't sell credit spreads because they are overvalued, you sell them due to RELATIVE value. In other words, you are trading the skew. >>>
Once again, I do NOT sell credit spreads.
You are again confusing my posts with oldnemesis.
I sell credit via naked puts.
<<< But you won't tell us how you are analyzing the risk/reward or the probability. >>>
I've discussed my method of fundamental and technical analysis many times. Even listed dozens of examples of the fundamental criteria I review.
And I've discussed some of the trends and ratios I review as well, to determine a stocks financial health and relative price value.
I once even posted a link to the ratio analysis page I use.
I realize option traders are not really interested in that stuff, so i don't discuss it too often or in excessive detail, as it's a rather time consuming and tedious process.
<<< And how are you ANALYZING the future? LOL. >>>
I would expect the same way you are. Are you saying you don't initiate trades based on your analysis of the future???
<<< What does this even mean?
"If the % return, and dollars earned are not adequate, for the risk and probability incurred, then the trade should not be initiated." >>>
I pass up doing many trades I've analyzed, because the potential income offered, is not worth tying up and risking my cash, for the low probability that this particular trade will end successfully.
<<< Optimum time? That's like saying I can win the lottery if I just pick the optimum time to buy my ticket. And of course the optimum numbers would help too. LOL. >>>
The optimum time to initiate a trade, is when the risk/reward is worth the probability of the trade succeeding, based on all the variables that make up the trade.
Are earnings pending. If so, am I being paid adequately for that added risk? Or should I wait until after the release and see how the stock reacts?
Is the stock currently trading at tech support?
If not, perhaps I should wait until it gets closer to that price area.
Is the credit offered above my minimum % return benchmark?
If not, that's another good reason to wait, and let the stock drop lower to tech support.
Am I anticipating a rise or drop in IV in the near future?
If so, better to either wait or act now.
Has the stocks overall sector been weak?
If so, there is no need to rush the trade. Give the credit a chance to rise.
(I'm currently watching and waiting on some Chinese stocks, as the sector has been weak)
Frankly, I'm a little surprised you don't think about the optimum time to initiate a trade.
This is really not very complicated.
I am predicting the TRADE will expire above my strike and/or has the ability to "recover" if it drops below.
And I am basing it on my analysis of all the variables that make up my trade.
My analysis of all the criteria that make up all those variables, is what determines whether the trade has a high or low probability of succeeding.
(Strike, % otm, tech support, price value, stock/sector stability, financial health, earnings date release, news, insider trading, length of contract, recovery potential, its a long list.....
Do you really find this too confusing to follow?
I don't base my probability analysis on some silly concept of, studies show via "statistical variance", that says the likehood of a stock dropping more than 6% per unit of time is blah blah blah.
That is way to lazy, simplistic, and generic an analysis for me.
<<< Credit spreads CAN'T be overvalued! They are a relative value trade. Since you are selling one option and buying another. You don't sell credit spreads because they are overvalued, you sell them due to RELATIVE value. In other words, you are trading the skew. >>>
Once again, I do NOT sell credit spreads.
You are again confusing my posts with oldnemesis.
I sell credit via naked puts.
<<< But you won't tell us how you are analyzing the risk/reward or the probability. >>>
I've discussed my method of fundamental and technical analysis many times. Even listed dozens of examples of the fundamental criteria I review.
And I've discussed some of the trends and ratios I review as well, to determine a stocks financial health and relative price value.
I once even posted a link to the ratio analysis page I use.
I realize option traders are not really interested in that stuff, so i don't discuss it too often or in excessive detail, as it's a rather time consuming and tedious process.
<<< And how are you ANALYZING the future? LOL. >>>
I would expect the same way you are. Are you saying you don't initiate trades based on your analysis of the future???
<<< What does this even mean?
"If the % return, and dollars earned are not adequate, for the risk and probability incurred, then the trade should not be initiated." >>>
I pass up doing many trades I've analyzed, because the potential income offered, is not worth tying up and risking my cash, for the low probability that this particular trade will end successfully.
<<< Optimum time? That's like saying I can win the lottery if I just pick the optimum time to buy my ticket. And of course the optimum numbers would help too. LOL. >>>
The optimum time to initiate a trade, is when the risk/reward is worth the probability of the trade succeeding, based on all the variables that make up the trade.
Are earnings pending. If so, am I being paid adequately for that added risk? Or should I wait until after the release and see how the stock reacts?
Is the stock currently trading at tech support?
If not, perhaps I should wait until it gets closer to that price area.
Is the credit offered above my minimum % return benchmark?
If not, that's another good reason to wait, and let the stock drop lower to tech support.
Am I anticipating a rise or drop in IV in the near future?
If so, better to either wait or act now.
Has the stocks overall sector been weak?
If so, there is no need to rush the trade. Give the credit a chance to rise.
(I'm currently watching and waiting on some Chinese stocks, as the sector has been weak)
Frankly, I'm a little surprised you don't think about the optimum time to initiate a trade.
I love that you and others actually believe all that crap actually pertains to your trades.
Thanks, but I'll stick to "common sense analysis" for my probability analysis.
You are like the Vegas casino gambler, who actually believes the gambling statistics for blackjack, craps, slots ect.... apply to him, and his chances of winning.
The truth is, those statistics apply only to the house.
Not the player.
Those statistics are based on many MILLIONS of hands played.
They are indeed 100% accurate... for the house.
The probabilty and other statistics you calculate for your trades, are just as useless, meaningless, and stupid.
However, if they make you feel good, and help you sleep better at night,... who am I to question the brilliance of you relying on the relevance of those statistics.
Why don't you try your luck at the 21 table.
I hear the statistics are in your favor over time, if you count cards, follow basic strategy, and play with an adequate bankroll.
HAHAHAHAHAHA!
Your understanding of "house edge" in gaming shows how woefully out of your depth you are here. I've been a pro gambler since I turned 21. I was using Thorp, Revere's APC/Uston's count from those days. We could start with odds on craps out of simplicity, but it's pointless as you're so inured in your (abjectly wrong) belief system that it no longer serves any purpose to correct you.
I assume you give yourself a long enough rope on the puts you short. As long as you don't buy into any diversification nonsense you may not blow-up. I think you're actually a decent guy and basically honest, but don't preach to PhDs and professionals about probabilities. You tarnish the entire process by assigning "probabilities" to this TA and fundamental horseshit analysis.
I assume you give yourself a long enough rope on the puts you short. As long as you don't buy into any diversification nonsense you may not blow-up. I think you're actually a decent guy and basically honest, but don't preach to PhDs and professionals about probabilities. You tarnish the entire process by assigning "probabilities" to this TA and fundamental horseshit analysis.
The Thorp, Revere's APC/Uston's count worked back in the day because the casinos were not as informed about card counting back then as they are now.
Now card counting is "mostly" neutralized by earlier and/or more frequent shuffles. Not to mention 6 - 8 pack decks.
Today, the casino computers are counting every deck played at every table.
If/when they become too much in favor of the players, and if the players are now suddenly raising their bets..... the dealer is told to shuffle.
You won't see that occur at a normal table with small increases in betting.
But at a table with lots of players now placing large bets, and the cards are in favor of the players to a sig degree..... it's shuffle time!
Don't confuse the old days with todays casinos.
Yes, you are still better off counting than not.
But most of the edge has been neutralized.
The casinos still pretend to fear counters. But it's an act.
They actually prefer counters to non counters.
The non counters tend to repeat the same or similar bet over and over again.
It's a very slow bleed.
The counter makes big bets now and then.... which the casino likes.
And of course every player who gets ejected for cheating, tells everyone he got banned for counting.
The casinos know who is counting. They do not fear them. They fear cheaters and team cheaters in particular.
You can announce in a loud obnoxious voice that you are a professional counter.... and they will offer you a free drink.
Again, the eye in the sky is counting right long side you.
And seriously, there is not one odd in the casino that has anything to do with the players. Not craps, 21, slots, ect.
They only refer to the houses edge and amount they can expect to make (keep) over a years time.
It's like assuming that because a royal flush appears on average every 40,000 hands, that you are soon due for one.
Your not!
It's the machine that's due. But it may not occur for 200,000 hands and then it suddenly gets 5 that week.
Back to options,....I am NOT assigning probabilities to TA and other fundamental horseshit.
That would be ridiculous.
You see me ridicule oldnemesis when he does it.
Have you ever seen me assign any probability to any trade in the history of my stay here?
I NEVER have and I NEVER will.
My probability discussion is about the overall picture.
That I believe trade "X" has a high probability of being successful,.... based on my experience, common sense, and analysis of the trade structure. And the longer the contract, the less meaningful the analysis.
On the other hand, there have been plenty of times I've stated this is a risky trade, and investors should not assume my posting it is a recommendation.
Hence, it was a lower probability trade.
No numbers. Just opinion, based on experience, common sense, and analysis of the trade structure.
Trade structure meaning... everything related to the stock and trade.
Do you or anyone seriously believe there is some useful relevance to a probability calc that yields X prob % of success over a 6 month period of market volatility, a dropping but maybe soon rising VIX/IV environment, 2 earning cycles, an unpredictable and volatile overseas financial environment, rising taxes, interest rates that can not go any lower, a trade that fluctuates daily after initiation.....ect....
Over very short trade periods.... yes.
Over a period of multiple months....no.
I think I'll stick with my common sense analysis, and make adjustments as I see fit..... even if someone tells me my prob calc is still at 92%.
Personally, I don't have a problem with your approach, you seem to be doing all right and as long as it works for you it works for you. What I do have a problem with is that you believe that everyone else is wrong for using a more quantitative approach (or in fact, for doing something different at all, e.g. selling credit spreads).
PS. This reminds me - a few years ago, in Helsinki, I witnessed some old lady get out of a 1976 Toyota (which probably does get her from point A to point B) and yell at Marcus Grönholm that he does not know how to drive.
I'm only questioning the "accuracy, relevancy, and usefullness, of posting actual prob percentages on a trade that is fluctuating daily, and is potentially influenced by so many fluctuating variables it has no control over.
Can anyone please explain why the prob cal % is posted on initiation... but not at any time after?
So what was the point of posting the prob % on initiation, which is now no longer the same prob % the next week?
Perhaps not even the next day.
If it's so accurate, relevant, and useful,.... where did it go after initiation?
Is that % number locked in for the duration of the trade? Really?
BTW, I do NOT believe that anyone is wrong for using a different strategy than mine.
I'm simply engaging in a discussion of questioning why they prefer that strategy.
Perhaps I'm missing something that I can learn about as well.
Maybe i only see the risks but not the benefits.
And are they aware of all the risks they are incurring.
For example, oldnemesis was not even aware he was using leverage via his credit spreads, until i pointed it out.
He didn't believe me for weeks, and we had many arguements.
He eventually acknowledged it and graciously thanked me.
And I am equally appreciative when others do the same for me.
I don't mind being attacked or insulted.
If I'm wrong, I may realize it weeks or months later..... after the battle.
Nothing wrong with some arguments, debates, battles, on a message board set up for discussion.
'For example, oldnemesis was not even aware he was using leverage via his credit spreads, until i pointed it out.'
As usual you flatter yourself.
I just got tired of argueing with you and wanted to shut you up.
Like now
As usual you flatter yourself.
I just got tired of argueing with you and wanted to shut you up.
Like now
lol, ps...terrific way to make a point.