SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
No, here's the difference. Everything in life has risk. Flying, driving, eating bad fish. The difference is, those are things we have to do. We don't have to sell naked premium. Why go through the motions of putting a loaded gun to your head when you don't have to? Can you answer me that?
Mav,
I am sorry to have misinterpreted your strategy.
Since our first phone conversation, I have been spending many hours everyday to find a strategy that should work well with my background and haircut leveraging. I have discovered a strategy of reducing risk with the benefit of higher leveraging. Of course no strategies will give us any positive expectancy, as Riskarb has told me before.
I am very excited about my "new" strategy, and I probably mix up mine with yours.
I am no MoMoney, and I will not try to interpret others' comments or strategies in the future. I apologize if I have made any incorrect comments, but all comments come from my own truth and my own understanding.
I have talked too much, and its time for me to shut up. I should put more time to improve my own "haircut" strategy.
I don't think you can separate risk/reward and probability of success/failure.
Since we're using real-world analogies, how about this one: Drive to the store and buy a gallon of milk.
Risk: Death, dismemberment, paralysis
Reward: a gallon of milk
Why would anyone ever leave their house!?!? Risk death for a gallon of milk?!?! What a horrible trade. So why do millions of people do it?
Not because they have to.
They could hole up in the house and call a grocery service.
They do it because the odds are in their favor to the extent that they think the risk is tolerable.
I'm not saying the loss probabililty of naked premium is as small as driving to the store. But then the risk of a bad short premo trade is also not as severe as a fatal car crash...
Its a sliding scale of risk/reward, %win/loss. Every trader will find a spot on the curve that suits them. Some traders will lose alot of money before they find their spot. Many will never find it.
In the meantime, stay at home and lock all your doors. Oh, and don't take a shower. I guarantee someone will get themselves killed this week falling in the shower.
Since we're using real-world analogies, how about this one: Drive to the store and buy a gallon of milk.
Risk: Death, dismemberment, paralysis
Reward: a gallon of milk
Why would anyone ever leave their house!?!? Risk death for a gallon of milk?!?! What a horrible trade. So why do millions of people do it?
Not because they have to.
They could hole up in the house and call a grocery service.
They do it because the odds are in their favor to the extent that they think the risk is tolerable.
I'm not saying the loss probabililty of naked premium is as small as driving to the store. But then the risk of a bad short premo trade is also not as severe as a fatal car crash...
Its a sliding scale of risk/reward, %win/loss. Every trader will find a spot on the curve that suits them. Some traders will lose alot of money before they find their spot. Many will never find it.
In the meantime, stay at home and lock all your doors. Oh, and don't take a shower. I guarantee someone will get themselves killed this week falling in the shower.
No, your example is a terrible one. People do need to eat and drive to the store. The risk of getting killed in a car accident is infinitesimal compared to the risk of short gamma going against you. Not to mention, the reward for selling your short gamma is pennies vs driving to the store for food and milk so you can LIVE!!!! Come on man, if you are going to give examples, please make them a little more kosher. LOL.
Are you sure you have that right? The odds of getting killed are actually higher in the car then the plane. You want to re-phrase that?
Ben,
There is no strategy that will provide you a positive expectancy, and I haven't tested out my 'haircut' strategy yet.
It is hard to explain my strategy because it is not a single step. It is a sequence of actions based on the market actions. Because of the sequence of actions, I will pay a lot in commissions. Will I have a positive expectancy with my way of trading under pure random market movement and efficient pricing assumption? Probably not. But there are time pricing is not that efficient, and market is not pure random.
Just like playing chess, no one can tell you the exact steps to win a game even with the same opponent. No one can teach you how to become the world champion. You have to learn the rules and some basic principles. Option trading is no difference from playing chess.
I am no option expert. So don't learn from me. My trading style won't work for you.
LOL!
You're the one that brought up the analogy of putting a bullet in the brain via Russian Roulette
There is a couple that lives down the street from us that hardly ever leaves the house. Every day, there is some kind of vendor there. Mobile vet. Schwann's food delivery, mobile car mechanic. You name it. They are both in their 50s and overweight, but they don't have any major medical issues that I can tell.
Maybe they are too focused on the risk of driving to the store...
Here is my cynical view on short gamma:
1) 95% of all traders and all strategies lose money
2) A good premium collecting trader can make consistent money.
3) Any short gamma trader (good or bad) can be wiped out by a 3+ sigma event.
So if I can be a good short gamma trader and my only fear is a rare catastrophe, I'm already way ahead of the other 95%. Is that so bad?
If I'm a bad short gamma trader, I will join the other 95% regardless.
You're the one that brought up the analogy of putting a bullet in the brain via Russian Roulette
There is a couple that lives down the street from us that hardly ever leaves the house. Every day, there is some kind of vendor there. Mobile vet. Schwann's food delivery, mobile car mechanic. You name it. They are both in their 50s and overweight, but they don't have any major medical issues that I can tell.
Maybe they are too focused on the risk of driving to the store...
Here is my cynical view on short gamma:
1) 95% of all traders and all strategies lose money
2) A good premium collecting trader can make consistent money.
3) Any short gamma trader (good or bad) can be wiped out by a 3+ sigma event.
So if I can be a good short gamma trader and my only fear is a rare catastrophe, I'm already way ahead of the other 95%. Is that so bad?
If I'm a bad short gamma trader, I will join the other 95% regardless.