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

Quote from Maverick74:

Over the years on ET I've spent a lot of time ripping apart the iron condor strategy so I hate to re-hash all that on here. I'll try to keep it brief. Not a single prop trader at my firm has been able to execute the strategy without blowing up eventually. The guys that teach it on the seminar circuit (Dan Sheridan, etc) won't go near it with their own money.

I've also asked this question over and over again and I never get a satisfactory answer, if this strategy is the be all end all of option strategies, why is there not a single hedge fund that does it? Why no CTA's? Sure, there are a lot of put selling CTA funds, but no pure iron condor funds. If this is such easy money, why are the 10,000 plus hedge funds out there spending a fortune on coding software and hiring 100 PhD's to come up with strategies when all they have to do is iron condors? The answer is it doesn't work.

Look, let's break this down. An iron condor is 4 options (two verticals) right? Every option in this spread is either priced above fair value, at fair value or below fair value. Over an infinite number of trades, the only way this strategy can produce a positive expectancy is for the trader to consistently sell each option above it's fair value and to buy each option below it's fair value. Anything else will produce a negative expectancy. There is no way around this.

The argument is often given, Oh, I'll adjust it. But the adjustment is a whole other trade and that trade itself has to be executed at better then fair value prices or it too will have a negative expectancy. There is no mathematical way around this.

I understand why it sells on the seminar circuit because it's easy to teach, it's great for lazy people who don't want to put any effort into trading and it's perfect for guys that are scared shitless to take a directional view. The problem is it just doesn't work.

Of course it works for awhile, until it doesn't. Now, let me add one more thing. I'm not saying it's not possible to make money trading volatility. One can put on an iron condor in GOOG if they think the two component verticals are trading above fair value. Selling the verticals in this example should produce a positive expectancy if the trader is correct on their volatility assessment. But that is not how guys are taught to trade it. They routinely put it on an index usually every single month on the same day of the week even and then sit back and pray and hope the market doesn't go anywhere.

Trading is 1000 times harder then that. Goddamn I wish trading was that easy. I really do.
More...
I don't have experience with prop traders or hedge funds and I haven't traded condors enough to prove anything but I think you make lot of assumptions concluding that condors just don't work.

- that not a single prop trader at your firm has been able to execute the strategy without blowing up eventually proves nothing. it's a finite sample and Being a prop trader doesn't mean advanced knowledge or experience or any guarante of success.

- because guys like Dan Sheridan on seminar circuit won't go near it with their own money proves nothing.

- that not a single hedge fund trade condors proves that it doesn't work is inconclusive. you know what all hedge funds trade? Any chance therre capable of trading more rewarding strategies?

- that 10,000 plus hedge funds out there are spending a fortune on coding software and hiring 100 PhD's to come up with strategies when all they have to do is iron condors doesn't mean it doesn't work. Why chase small money )condors) if you can bang out HFT profits with risk measured in seconds? hedge funds chase bigger fish.

and your conclusion that fair value, adjustments and positive expectancy are the tell all of profitability is also presumptuous. investing/trading is as much about market timing skills and money managment as executing the position.

just because you can't or don't think that someone can make money with XYZ or that I could with what you think works is presumptuous. Your entitled to your opinion but that doesn't make it gospel.
 
the answer can be plain simple:

trade stock: you deal with "delta" only
trade option: you deal with 3 more "greeks"


so if you can't trade 1 greek, how can you handle 3 more greeks??? even if you neutralize "delta", you probably can't neutralize "gamma" & "theta" to trade "vega" exclusively. you can reduce them to a minimum but they are still there.

and volatility won't change by itself. volatility changes often in response to price change. you may think you're trading volatility, you're also dealing with price change.
 
Quote from TheoHornsby:

I don't have experience with prop traders or hedge funds and I haven't traded condors enough to prove anything but I think you make lot of assumptions concluding that condors just don't work.

- that not a single prop trader at your firm has been able to execute the strategy without blowing up eventually proves nothing. it's a finite sample and Being a prop trader doesn't mean advanced knowledge or experience or any guarante of success.

- because guys like Dan Sheridan on seminar circuit won't go near it with their own money proves nothing.

- that not a single hedge fund trade condors proves that it doesn't work is inconclusive. you know what all hedge funds trade? Any chance therre capable of trading more rewarding strategies?

- that 10,000 plus hedge funds out there are spending a fortune on coding software and hiring 100 PhD's to come up with strategies when all they have to do is iron condors doesn't mean it doesn't work. Why chase small money )condors) if you can bang out HFT profits with risk measured in seconds? hedge funds chase bigger fish.

and your conclusion that fair value, adjustments and positive expectancy are the tell all of profitability is also presumptuous. investing/trading is as much about market timing skills and money managment as executing the position.

just because you can't or don't think that someone can make money with XYZ or that I could with what you think works is presumptuous. Your entitled to your opinion but that doesn't make it gospel.
More...

Thank God you didn't actually read anything I said so I don't have to bother responding to this drivel in detail.
 
Quote from TheoHornsby:

I don't have experience with prop traders or hedge funds and I haven't traded condors enough to prove anything but I think you make lot of assumptions concluding that condors just don't work.

- that not a single prop trader at your firm has been able to execute the strategy without blowing up eventually proves nothing. it's a finite sample and Being a prop trader doesn't mean advanced knowledge or experience or any guarante of success.

- because guys like Dan Sheridan on seminar circuit won't go near it with their own money proves nothing.

- that not a single hedge fund trade condors proves that it doesn't work is inconclusive. you know what all hedge funds trade? Any chance therre capable of trading more rewarding strategies?

- that 10,000 plus hedge funds out there are spending a fortune on coding software and hiring 100 PhD's to come up with strategies when all they have to do is iron condors doesn't mean it doesn't work. Why chase small money )condors) if you can bang out HFT profits with risk measured in seconds? hedge funds chase bigger fish.

and your conclusion that fair value, adjustments and positive expectancy are the tell all of profitability is also presumptuous. investing/trading is as much about market timing skills and money managment as executing the position.

just because you can't or don't think that someone can make money with XYZ or that I could with what you think works is presumptuous. Your entitled to your opinion but that doesn't make it gospel.
More...

Sounds like your pride has been slightly wounded. Who said Mav's opinion is gospel? It's a just a well considered opinion supported mostly with anecdotal evidence. But Mav's reasoning is sound IMO.
If an IC could offer a 10% risk free annual return then the operator would truly be a master of the universe.
 
I think everyone is basically right here. Can you make money with directional trades? Yes. With volatility trades? Yes.

How? In both cases, you gotta guess something right. It is true that all options trades have approximately a zero expectation, ignoring commissions and slippage.

No, one cannot just blindly put on condors continuously. If you're right 80% of the time, and your losers are 4 times the size of your winners, you are back at zero. Sure you can adjust, exit early, etc., but this just shifts the probabilities; by doing that you are cutting off both your losers and your winners. It comes down to guessing right about the direction of volatility and of skew--which is really just another kind of directional trade.

Why do you need to pick stocks? You don't need to be able to pick stocks, because other people can pick them. I can't pick stocks worth a damn. I spent 10 years (1996 to 2006) trying to pick them myself, and made nothing at it. If you could not make money picking stocks in that time frame, you are a total moron at stock picking. But there are plenty of people out there who are pretty good stock pickers. All you have to do is follow one or more of these services--there are tons of them, and many are free. Or scout through what your favorite mutual fund or hedge fund has in their inventory. Look at the picks on S&P or Value Line. Read IBD. Or use some simple technical indicators. Even if all you do is stay out of the worst 3 or 4 sectors, that is a legitimate method. None of these methods are perfect, but any of them are a lot better than I am.
 
Quote from Maverick74:

I've been trading options for 14 years and I will say that if you are not a good directional trader, you have little to no chance making money trading options. The myth is that of the retail market neutral options trader. He doesn't exist. He may think he does, but he doesn't. Discuss!
More...
Expressing market neutrality by simply putting on iron condors? Of course not, John. Who gives away money? But you know that trading into a position that is short centrally and long laterally with excess wingstrikes is a market neutral book that will make a solid p.a. return. Of course it needs to be traded, clipping risk here and there.
 
Quote from sonoma:

Expressing market neutrality by simply putting on iron condors? Of course not, John. Who gives away money? But you know that trading into a position that is short centrally and long laterally with excess wingstrikes is a market neutral book that will make a solid p.a. return. Of course it needs to be traded, clipping risk here and there.
More...

Ahh, those are the words I wanted to hear "trading into a position". See, that is where you are going to lose 95% of these guys, on the trading part. And it was also the OP question and I thought I answered it, in my own snarky way of course. :)
 
Quote from Maverick74:

Ahh, those are the words I wanted to hear "trading into a position". See, that is where you are going to lose 95% of these guys, on the trading part. And it was also the OP question and I thought I answered it, in my own snarky way of course. :)
More...
:eek:
 
Quote from turkeyneck:


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

Myth or fact?
More...

A fact, and a myth as well!

"Prerequisite" probably is a proper word indeed!

imo, trading ULs well does not guarantee a success at all in trading options.

Trading options requires to acquire/develop further/incremental edge and a quite different mindset beyond simply trading ULs.

If trading ULs can be easily transformed to trading options, I would guess many traders would have already used options for trading rather than still using ULs.
 
The bottom line here is not what strategy is profitable, you can win (or lose) money with IC’s in the same way that you can do that trading futures, stocks or double diagonal ratio backspreads. The bottom line here is that you need a SYSTEM, a winning one that takes you over the market.

Is buying IC’s (negative gamma) a trading system? No, It’s only an options strategy that need a trading system in order to turn it in a profitable one.

The question that every trader must inquire himself is where is his trading edge.

Briefly: no edge, no money.

Regards.
 
You must log in or register to reply here.
Back
Top