Yeah here is a simple question to ask yourself, if it was possible to make money without having to predict price or vol and make money, then why would anyone go through the effort of trying to predict price and vol? Everyone should think about that for a second. It's like saying if I could get a job that pays 100k a year for sure without going to college, then why would anyone spend 100k and 4 years to go to college. There has to be some reason why everyone is not choosing this oh so easy path of not forecasting price and making money. I'm curious if any of our premium sellers on this thread have thought about that question and what their answer might be.
Selling delta 3-5 ES Puts with 40-57 days left
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Yeah here is a simple question to ask yourself, if it was possible to make money without having to predict price or vol and make money, then why would anyone go through the effort of trying to predict price and vol? Everyone should think about that for a second. It's like saying if I could get a job that pays 100k a year for sure without going to college, then why would anyone spend 100k and 4 years to go to college. There has to be some reason why everyone is not choosing this oh so easy path of not forecasting price and making money. I'm curious if any of our premium sellers on this thread have thought about that question and what their answer might be.
Risk management is not an edge because it's widely available to everyone. Again, an edge by it's very definition needs to be allusive, hard to obtain and come at some cost. An edge is not a stop order or some rule that says if I'm down 2% I get out. Anyone can do that. John Rockefeller with standard oil had an edge. His edge was not that he knew where oil was. Everyone knew where the oil was. His edge was not his costs or even his risk. His edge was he bought up all the railroads that moved oil from the wellhead to the market. He had a monopoly. You produce all the oil you wanted, but when it came time to move it and sell it, you had to pay him. That is how he built his empire, not simply by drilling for oil.
Thanks.
Yes risk management alone is not an edge. But it certainly can be part of an edge specifically:
1) position sizing at entry to balance risk vs return. Obviously if you trade one SPX contract on a $1million account you're never going to blow it up but your returns are going to suck
2) adjusting risk and moving positions out of danger is also an edge. If you do it too early you miss out on a rebound and reduce your return. If you do it too late you're positions are too deep in loss and it's harder to get it back. Finding the sweet spot sure is an edge.
By your logic everything that any trader does CAN be done by another trader, therefore no one can have an edge unless they are insider trading (or have he fastest connection to an exchange with HFT algo)
In your example of oil, sometimes the edge is just taking all the info and processing it better than someone else. A friend of mine took all the floor maps of the Caspian Sea (lots of oil drilling on the seabed there) and just compiled them into one database. He spent some money filling in the blank spots between the data but basically 90% was already done. Seems like a duh right? Anyone could have done it, but he did and sold it to Schlumberger for millions. That was his edge ...
No man, you're confusing providing a service with an edge. I could bake cookies and sell them to you for $6 per dozen, that is a service, not an edge. Your friend provided a service and was compensated for it. My local McDonalds doesn't have an edge either, they make food and sell it, anyone can do it and anyone can earn the yield that comes from that.
I never said with my definition of edge that "no one" can do it. Please re-read my post. I said it had to be "difficult to obtain" and "not freely available to everyone". Your edge is actually extremely easy to replicate, I could do it in my sleep, and certainly is widely and freely available to everyone. I know there are people on here that truly and deeply believe that most traders just can't manage risk, but that is not really the reason why they fail. Being able to roll out and get out is something that 98% of the people can do just fine here. Honestly, it's not that hard and it's not an edge.
Ok let me get this straight:
1) Standard oil's edge was he "bought up all the railroads". How is that elusive? Pretty obvious oil is not going to go anywhere on its own. He just got there first. Now I will agree with you if you say that buying "first" in business/technology etc is an edge in of itself. Otherwise quite frankly even mcdonalds has an "edge" (they did hit all time highs btw : ) because they were the first truly mass market fast food and took up some of the best real estate across the country.
YET
2) Buying up all the data on a seabed and packaging it is NOT an edge? Why? Pretty much same as buying up all the railroads (this is just controlling information vs controlling actual physical plant). The edge here was that he was able to get it done first and there was no point for someone to come after.
So if managing positions in a specific way is not an edge...can you describe (again broad terms are fine not asking you to write out your whole strategy) what YOUR edge is? Can you accurately predict where the market is going directionally? If so that would be pretty damn impressive if you can do it consistently and I would agree with you that is quite an edge above mine and above 99.999% of all traders. Can you accurately predict where volatility is going consistently (beyond the simple mean reversion we all know about)? Again I would give you that it would be quite an edge.
And I do think that many if not most traders who fail it's because they 1) do not position size properly, 2) do not manager losers and winners properly. Because no one I have ever met can predict 100% of the time where the market is going, so by definition, their edge comes from something else
By the way, in all my years or trading I have always asked myself "why isn't someone/everyone else already doing this?". I have a good answer now, but I agree with you that many many people (including myself for many years) do not, and that's a good reason to really evaluate one's strategy
Come on dude, you don't need to predict things or be right *consistently* - you just need to do it enough to have positive expectancy.
The entire point of the prior discussion is that the positions you're talking about putting on are inherently dangerous and exposed to massive gamma and vega risk. Don't use January as an example, use 8/24/2015, 5/6/2010, or any number of VIX spike days. IMO, you keep latching to these positions because you're enamored with their potential to "be right all the time" (and I have a feeling you have an issue with that too) - whilst smoothing over and justifying their incredible embedded risks. There's some psychological reason you're attracted to this type of "sure thing" and I really think you need to examine why that is.
http://www.elitetrader.com/et/index...ion-opening-price-and-set.74417/#post-4231559 <--- you were even given a little real life warning here on what's in store for you if you keep it up (and no, finding the market that's open the longest [ES] so you can "manage risk" won't save you in all cases).
Consistently doesn't mean 100% of the time. But to generate meaningful returns if they key to them is being correct, you have to be correct much more often than wrong (in % winning trades and also avg profit vs avg loss). Yes of course if you're right 51% of the time and have the same hard exist at equal profit or loss you still have positive expectancy, but it's not meaningful. And if you just "happen" to be right more than you're wrong that's not an edge. Even Maverick said the edge has to come from somewhere, it has to have a reason. I would genuinely like to hear from him about what is edge is, because straight selling ATM obviously is not (otherwise just like he said everyone would do it). And selling them on vol spikes (and buying back when vol drops) isn't either because it's either not profitable enough (if your vol spike criteria is too strict) or is not much of a help (if your criteria is too loose and many times vol keep spiking after anyway). There's gotta be something else for Mav to be a good trader which clearly he is and I hope he comes back to share.
YES you are absolutely right. The human mind does "feel better" with a strategy that produces significantly more winners than losers. That is psychology. That's why Taleb has such difficultly attracting investors, because they don't want to sit around taking losses for 8 years until a black swan comes, even though when it does they will have made huge gains.
I see you took the time to read through my post history : ) Actually, I forgot about that (learned the lesson, forgot the loss) but that vol spike and sudden gap also meant big jump in premium for options that were one week out and I made that back in a week (not selling deep OTM this time obviously it was much closer to ATM). But the lesson there was just that IF I was holding a position to expiration (which is very rare) I could have more issues with the Fri morning gap with AM settled options. Because the problem there was that the option pricing for the week out was obviously not based on SET but on SPX so to make up the loss you'd have to take on more risk than normal. If I had SPXPM and it gapped down past my adjustment criteria I can move it per plan and back to safety. Yeah it was a very newb error and I felt pretty dumb for it given that I really should have known the SET/SPX open discrepancy, but it certainly did not disprove my strategy.
Oh and BTW.....I test EVERYTHING I do against Sep/Oct 2008 (biggest spx % moves and spikes in short times) AND now Aug 24th. Aug sucked, no doubt about it, I took a big hit and not ashamed to admit it. But, I didn't blow up......even though that was largest priceXvol move in 80 years (i.e much worse for me than sep/oct 2008 would have been). Even though there's virtually no chance it will happen again for a long time, I decided to make some adjustments because of it and now I do test my positions DAILY against a similar move.
Now you're going to tell me what if something happens 2x worse than Aug. Well I still fly on a plane even though there's one that just crashed and there's a chance my next flight will too. I still walk outside even though there's a chance I can get hit by a car with no chance to escape. There's a point where worrying about an extreme worst case scenario becomes pointless, in life and in trading also. Don't you think it's interesting that Niederhoffer "blew up" several times, yet still made money for his investors and for himself. People love to point to him as a poster child of OTM put risk....yet he's still richer than all of us on here (not to mention...one of his "blow ups" had nothing to do with OTM puts at all). Let that sink in for a minute.....
But look, if we get a mega uber black swan and I can't manage it and get wiped out, I will personally come back here and say to you that you were right and there was no way I could ever "win" in the long term.......for now I'll keep collecting my nickels and outrunning the steamroller. Actually, I'm happy a lot of you don't agree with me, I'd hate for you to push down the prices of my DOTM puts when I'm trying to sell them : )
YES you are absolutely right. The human mind does "feel better" with a strategy that produces significantly more winners than losers. That is psychology. That's why Taleb has such difficultly attracting investors, because they don't want to sit around taking losses for 8 years until a black swan comes, even though when it does they will have made huge gains.
I see you took the time to read through my post history : ) Actually, I forgot about that (learned the lesson, forgot the loss) but that vol spike and sudden gap also meant big jump in premium for options that were one week out and I made that back in a week (not selling deep OTM this time obviously it was much closer to ATM). But the lesson there was just that IF I was holding a position to expiration (which is very rare) I could have more issues with the Fri morning gap with AM settled options. Because the problem there was that the option pricing for the week out was obviously not based on SET but on SPX so to make up the loss you'd have to take on more risk than normal. If I had SPXPM and it gapped down past my adjustment criteria I can move it per plan and back to safety. Yeah it was a very newb error and I felt pretty dumb for it given that I really should have known the SET/SPX open discrepancy, but it certainly did not disprove my strategy.
Oh and BTW.....I test EVERYTHING I do against Sep/Oct 2008 (biggest spx % moves and spikes in short times) AND now Aug 24th. Aug sucked, no doubt about it, I took a big hit and not ashamed to admit it. But, I didn't blow up......even though that was largest priceXvol move in 80 years (i.e much worse for me than sep/oct 2008 would have been). Even though there's virtually no chance it will happen again for a long time, I decided to make some adjustments because of it and now I do test my positions DAILY against a similar move.
Now you're going to tell me what if something happens 2x worse than Aug. Well I still fly on a plane even though there's one that just crashed and there's a chance my next flight will too. I still walk outside even though there's a chance I can get hit by a car with no chance to escape. There's a point where worrying about an extreme worst case scenario becomes pointless, in life and in trading also. Don't you think it's interesting that Niederhoffer "blew up" several times, yet still made money for his investors and for himself. People love to point to him as a poster child of OTM put risk....yet he's still richer than all of us on here (not to mention...one of his "blow ups" had nothing to do with OTM puts at all). Let that sink in for a minute.....
But look, if we get a mega uber black swan and I can't manage it and get wiped out, I will personally come back here and say to you that you were right and there was no way I could ever "win" in the long term.......for now I'll keep collecting my nickels and outrunning the steamroller. Actually, I'm happy a lot of you don't agree with me, I'd hate for you to push down the prices of my DOTM puts when I'm trying to sell them : )
I wonder why Victor did not blow up in 1987?... I think 'edge' is just another word for having a unique strategy. Like shorting UWTI and going long USO to take advantage of the greater contango decay on the former. But I imagine nowdays, with the advant of computers and the very high stakes, there are probably very few truly unique strategies.
Some other high-edge strategies I have tested:
Selling very narrow SPX Iron Condors that expire 200 days (anticipating flat market). These have payouts 10-20:1, with examples of winning years being 2011, 2015, 2005,
Buying a leap OTM bull call spread on SXP 15-17% OTM every year. These again have payouts 10-20:1. This did well in 2009, 2013, 2003, and obv. the the 80's and 90's
Buying small number of far OTM puts during periods of high interest rates and parking the rest in T bills (would have worked well in 2000, 1987, 1997)
Some other high-edge strategies I have tested:
Selling very narrow SPX Iron Condors that expire 200 days (anticipating flat market). These have payouts 10-20:1, with examples of winning years being 2011, 2015, 2005,
Buying a leap OTM bull call spread on SXP 15-17% OTM every year. These again have payouts 10-20:1. This did well in 2009, 2013, 2003, and obv. the the 80's and 90's
Buying small number of far OTM puts during periods of high interest rates and parking the rest in T bills (would have worked well in 2000, 1987, 1997)
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Niederhoffer being rich is not proof of claim.
You need to understand 2 and 20, or whatever he managed to get away with.
Hell, if I got 2 and 20 on the money he raised, I'd be rich, and presumably that would make me great.
Well, read up on all the hedge funds losing money faster than you or I can, but the managers are still stinking rich because of 2 and 20.