Strategy risk vs overall risk mandate

blueraincap said:
Anyone has pointers to methodologies in constructing a "risk" or "sentiment" indicator?
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For which type of trading assets? Stocks? Options?
You have to differentiate between assets with expiration and assets w/o expiration.
And generally the volatility is the main part for any risk calculation.
Search for "probability-weighted", "probability-weighting", ...
 
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deaddog said:
Risk it all sounds more like a gambler.
I'm quite willing to hold on for huge profits but I see no reason to risk it all.
I maintain that the difference between a gambler and a speculator is prudent risk management.
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No, when you buy an option, the risk is bounded, predetermined prior to a trade. It is probability based, similar to a stop loss in trading.

The risk management part does come into play, by not putting all your money on one trade. That is gambling.
 
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ironchef said:
No, when you buy an option, the risk is bounded, predetermined prior to a trade. It is probability based, similar to a stop loss in trading.
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True, BUT this does not necessarily mean risk is always capped :)
With some options strategies the risk can also be "unlimited", ie. +inf :)
For example ShortCall has unlimited risk potential.
And also ShortStock.

Update: sorry, I misread as @ironchef means long option trades only, excluding short option trades. My above answer is about short options...
 
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Quanto said:
True, BUT this does not necessarily mean risk is always capped :)
With some options strategies the risk can also be "unlimited", ie. +inf :)
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Explain please. How can my risk be unlimited when I buy a single leg?
 
Quanto said:
Ok, sorry, I misread. You mean long option. I was meaning short option.
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The one advantage of buy (long) single leg that most retails overlooked is you are in total control.

Yes, you pay for it but if you think about it carefully, that is a tremendous advantage in an ocean full of sharks.
 
ironchef said:
The one advantage of buy (long) single leg that most retails overlooked is you are in total control.

Yes, you pay for it but if you think about it carefully, that is a tremendous advantage in an ocean full of sharks.
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True, but I like to use a "halfways similar" solution using options writing... Maybe just a psychological issue with me... :)
 
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