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

I'm in agreement with DRCHA. In order to succeed with trading, for the most part you have to get something right regardless of whether you're trading direction, non-direction or volatility. Perhaps you leg in advantageosly. Or you adjust well (booking profit or mitigating loss) - and get some help from the market. Or you cut losses before they get out of hand.

No position can be continuously and lazily put on blindly and expect to succeed nor can you dismiss any option strategy as a road to failure. It depends on one's skillset.
 
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.
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Maverick,

Please define this "fair value" you speak of...? :confused: I'll give you a hint...there's no such thing.
 
Quote from CloroxCowboy:

Maverick,

Please define this "fair value" you speak of...? :confused: I'll give you a hint...there's no such thing.
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Of course it does. We can solve backwards for fair value at expiration and derive what each call and put should have traded at a specific point of time based on the expiration value of each. So at the time of your trade, you are either buying an option that is above or below that value or selling an option that is above or below that value.
 
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.
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Go and try it. If you do a monthly IC (with those 10% return), come back to me again after five years (60 months) and tell me if you are profit or blow up ? :D
 
Quote from Maverick74:

Of course it does. We can solve backwards for fair value at expiration and derive what each call and put should have traded at a specific point of time based on the expiration value of each. So at the time of your trade, you are either buying an option that is above or below that value or selling an option that is above or below that value.
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Hmmm...I don't hold my IC trades to expiration. Try again.

(And please don't say "solve backward from when you would have closed the position" I'm sure you can see the problem with that train of thought)
 
Quote from CloroxCowboy:

Hmmm...I don't hold my IC trades to expiration. Try again.

(And please don't say "solve backward from when you would have closed the position" I'm sure you can see the problem with that train of thought)
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Look, you are not understanding something. It does not matter when you close your position. In fact, you have the same problem when you close your position as when you open it. At the end of the day, you are either buying or selling your options above and below fair value or you are not. No amount of trickery can get around this. It's very hard to argue with you iron condor guys because you live in a world where you actually think theta is an edge. I quite frankly am not interested in discussing the 1000 different ways that is false.

There is no edge in putting on iron condors every month if you are not modeling volatility, period. There is nothing you can argue about this. Getting out early is not an edge!!!!!! Selling 5 delta vertical spreads is not an edge. Even if you go way way way way way way out of the money....that is not an edge! Your ability to close a position early. I mean come on people, this is a zero sum game and you are trading against professionals. Do you really think having a pulse and an internet connection is the path to financial freedom? LOL.
 
Quote from CloroxCowboy:

Hmmm...I don't hold my IC trades to expiration. Try again.

(And please don't say "solve backward from when you would have closed the position" I'm sure you can see the problem with that train of thought)
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Fair value implies risk neutral pricing (however you want to define that) - you can certainly make the argument that the latest market price is 'fair value', although 100:1 says if a basic BS model values a call at $1 and the offer is $.02 you're buying.

-my 2c
 
Quote from Maverick74:

Look, you are not understanding something. It does not matter when you close your position. In fact, you have the same problem when you close your position as when you open it. At the end of the day, you are either buying or selling your options above and below fair value or you are not. No amount of trickery can get around this. It's very hard to argue with you iron condor guys because you live in a world where you actually think theta is an edge. I quite frankly am not interested in discussing the 1000 different ways that is false.

There is no edge in putting on iron condors every month if you are not modeling volatility, period. There is nothing you can argue about this. Getting out early is not an edge!!!!!! Selling 5 delta vertical spreads is not an edge. Even if you go way way way way way way out of the money....that is not an edge! Your ability to close a position early. I mean come on people, this is a zero sum game and you are trading against professionals. Do you really think having a pulse and an internet connection is the path to financial freedom? LOL.
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Wow, I think I hit a nerve...

Lost a couple Gs on condors, eh Mav? Still stings a little?

If you want to resume when your hissy fit is over I'd be happy to discuss the above fallacies/half-truths.

Your call.
 
Quote from Soon2Bgreat:

Fair value implies risk neutral pricing (however you want to define that) - you can certainly make the argument that the latest market price is 'fair value', although 100:1 says if a basic BS model values a call at $1 and the offer is $.02 you're buying.

-my 2c
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My point is that it's entirely possible to leg-out of condors prior to expiration for profit (long term, not every trade). As Maverick pointed out in such an adult manner, it does involve volatility analysis.
 
Quote from CloroxCowboy:

Wow, I think I hit a nerve...

Lost a couple Gs on condors, eh Mav? Still stings a little?

If you want to resume when your hissy fit is over I'd be happy to discuss the above fallacies/half-truths.

Your call.
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No nerve hit. I don't trade iron condors. If I want to make .30 I'll scalp two ticks in the spoos instead of sitting on a risk for 30 days waiting for those two ticks.

I understand how you think. I don't have a problem with legging positions but once you do that you become a directional trader. I don't have any issues with that either but then one's long term success will be a function of their directional trading skills. And if you are so good at legging, whether it be legging in or legging out, then why not trade the underlying? I never get a good answer for this.

There are a million ways to trade options, iron condors simply have the most negative edge of all of them. It's analogous to Keno in a casino. Keno has the highest negative edge of any casino game but it's the most fun to play, especially for older people. Iron condors are the same way.

At the end of the day, when you trade options, you are either trading volatility or direction or some combination of both. You are not trading time or theta. If you even have the slightest bit of success legging your positions, you will have a far better risk to reward structure just scalping a few pennies in the SPY a couple times of month or trading pure gamma.

And btw, not everyone that disagrees with you is having a hissy fit. I've discussed this shit for years on this forum and it's guys like you that actually made me not want to post here anymore as it has become an extension of the optionetics cult.
 
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