Success in trading stocks a prerequisite for success in trading options?

[CloroxCowboy]

Quote from Maverick74:

OK, not to beat a dead horse here but I'm not trying to sell you on either strategy. I'm simply trying to illuminate what an IC is, a mean reversion strategy. You can shoot 1000 holes in the stock strategy and I can shoot a 1000 holes in the IC strategy. Neither is better or worse and that was my point.

One more tiny little point here. You keep talking about black swan risk but I can tell you at my prop firm, far more guys have blown out on iron condors then long stock positions. It's not even close. Now, I know you can always trade them really small, but then your profit is going to be minuscule as well. It's a trade off. At the end of the day, the IC is a leveraged bet on a 5 delta spread. That's it. How much you end up making over time will be dictated by the leverage you use. That same leverage will also dictate how big your hits are.

Oh and when I said the flash crash was a moot pt, I meant in comparison to the IC. I really do not believe the IC fares any better in a flash crash then long a small amount of index shares. Just my opinion. I'm often wrong.

I can see your point for the most part. Thanks for all your responses.

Are you willing to reveal your strategy of choice? I'm not baiting an argument, just curious.

 

[Maverick74]

Quote from CloroxCowboy:

I can see your point for the most part. Thanks for all your responses.

Are you willing to reveal your strategy of choice? I'm not baiting an argument, just curious.

Well, anyone that knows me on here knows that I've always said there is no "strategy" for making money. One has to develop the "skill" to become a good trader. Just as one can not learn a magical way to throw a football to become like Tom Brady. One has to develop the "skill" of a Tom Brady.

I'm more of a directional trader. I am biased to a very close cousin of the condor, flys. And a distant cousin of the flys, the backspread. Hell, it's all incestuous. They are all related. I guess that's why these reunions on the option forums get messy. It's like a redneck Christmas gathering. But flys and backspreads are ideal and I don't pretend I can model vol well. However I do take some pride in my directional trading and that gives me a decent de facto forecast on vol.

 

[CloroxCowboy]

Quote from Maverick74:

Well, anyone that knows me on here knows that I've always said there is no "strategy" for making money. One has to develop the "skill" to become a good trader. Just as one can not learn a magical way to throw a football to become like Tom Brady. One has to develop the "skill" of a Tom Brady.

I'm more of a directional trader. I am biased to a very close cousin of the condor, flys. And a distant cousin of the flys, the backspread. Hell, it's all incestuous. They are all related. I guess that's why these reunions on the option forums get messy. It's like a redneck Christmas gathering. But flys and backspreads are ideal and I don't pretend I can model vol well. However I do take some pride in my directional trading and that gives me a decent de facto forecast on vol.

Thanks, like I said just for curiosity. I agree there's no magic bullet, but I wanted to get an idea what you preferred since you stated earlier that neither method for playing mean reversion was your top choice.

 

[sonoma]

Quote from rew:

...From what I can see, options in liquid option chains tend to be priced fairly. That means that on the whole there is no edge to be had in buying or selling, and given the bid/ask spreads and commissions that means if you buy or sell at random you will lose money. To make money, whether buying or selling, you have to be able to predict direction or volatility or both significantly better than chance.

The index ETF options or liquid equities are pick 'em markets. That's not necessarily the case as expiration or earnings nears, but for the most part it's true. "Predicting" is a tough thing to do. If you're running strict replication, then shorting higher vol than realized results in positive replication error and if you short lower than realized, you lose. However, you're not locked into holding your inventory statically until expiration. Consider an alternative strategy that I'll characterize as "taking advantage of opportunities that present themselves." The idea is the same as flipping a fair coin but stopping the trial after 15 tosses if all of a sudden you get 5 heads consecutively. If you persist to a total of 100 tosses, then that run of 5 heads will be buried and your fair coin will show a 1:1 ratio. The odd run of direction or vol happens frequently enough in the markets that if you're attentive, you trade to a positive p/l.

 

[mayhem28]

Is it tougher to find a successful daytrader or options trader amongst the greater trading population? I think the later. I'm not talking about those that say buy leaps or use options to hedge their stock positions. You just don't really "hear" about them that much (outside Market Wizards books) Could be my imagination tho

 

[Soon2Bgreat]

Quote from stock piker:

He was a local, and AFAIK, has never traded for a bank. He lost money for Paloma in the late 90s, alot of money

You could be right in that he lost money at Paloma. The point I wanted to make was that he had made money trading his theories.

It's not as if he came up with his views and then tried to apply them to the markets - his views are a direct result of his experience in the markets. That's the key takeaway.

...and I do think he traded for a variety of banks (CSFB, BNP, UBS, etc.) You're also right that he worked as a local.

 

[Soon2Bgreat]

Quote from CloroxCowboy:

In this context you could say that markets try to put a price on uncertainty. What do you think the purposes of markets are?

To raise and allocate capital as well as to transfer risk - often with the intention that markets are fairly priced.

I was trying to point out that if options (or any other asset) are fairly priced, that doesn't invalidate the purpose of markets. If anything it might enhance their credibility.

Putting a price on uncertainty, in my view, is a function of markets (and perhaps the purpose of speculators) - in this context I agree someone may not want to participate in the markets if they believe the markets are fairly priced.

 

[failed_trad3r]

option trading is way harder.You can't baghold an option position. And averaging down punishes you way harder.

 

[MasterAtWork]

Quote from Maverick74:

Actually I believe he did. I can't speak for the magnitude of the profits but it's been written about all over the web. I believe 2008 was the best year his fund ever had. I should clarify, the fund he has an advisory role with. Much has been made that it's not "his" fund per se. I'm not going to argue over the semantics. Regardless, I believe his ideas are sound.

I didn't want to be that rude.
My point is pretty simple :
- Jim Simons is famous 'cause Renaissance's returns
- Empirica/Universa are known 'cause Taleb's TV shows
I'm sure you see what I mean.
It doesn't mean his ideas are wrong. But, as a matter of fact...
And 2008 may be the best year his fund ever had because the return was positive.