I'm looking for some leads on interesting behavior you guys have experienced/witnessed over the years.
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what are some interesting/counterintuitive things you have learned trading options?
- Thread starter thepolarbear
- Start date
The biggest thing I learned is how many years it really takes to get a good grasp on all the aspects of options.
It's fairly straightforward to learn the greeks, theory and even practice, but until you have positions on and watch the market go through many different iterations of movement - it's hard to know how you will react and how your positions will behave and react.
For instance...even though you may have complete price predictability and know and understand exactly what you will do during certain moves, there may be no one there to make the market. Then what will you do.
It's amazing how often you think you've become very comfortable with what you're doing and then how quickly you can become uncomfortable again.
It's fairly straightforward to learn the greeks, theory and even practice, but until you have positions on and watch the market go through many different iterations of movement - it's hard to know how you will react and how your positions will behave and react.
For instance...even though you may have complete price predictability and know and understand exactly what you will do during certain moves, there may be no one there to make the market. Then what will you do.
It's amazing how often you think you've become very comfortable with what you're doing and then how quickly you can become uncomfortable again.
sounds like you've been doing this a long time
do you have any specific examples of things not behaving as you anticipated / markets going bidless/offerless?
do you have any specific examples of things not behaving as you anticipated / markets going bidless/offerless?
Quote from OddTrader:
Do you think trading only the most liquid markets could resolve the problem?
I trade the ES futures options - one of the most liquid contracts in the US. When we were dropping in 2007, I was actually sending instant messages to friends in Hong Kong overnight to try to talk them into taking the other side of some of my positions.
There was nothing out there. We'd be dropping like a stone and I couldn't get $10 over fair value for any option contract. I'd never seen anything like it. The feeling is one of physical pain that originates deep substernum and seems to start sucking your organs inward....because I was losing the money of others as well as my own.
You have to experience it to appreciate how debilitating it is. It changed me and the way I trade today. For several years after, I couldn't even trade.
Quote from ktm:
I trade the ES futures options - one of the most liquid contracts in the US. When we were dropping in 2007, I was actually sending instant messages to friends in Hong Kong overnight to try to talk them into taking the other side of some of my positions.
There was nothing out there. We'd be dropping like a stone and I couldn't get $10 over fair value for any option contract. I'd never seen anything like it. The feeling is one of physical pain that originates deep substernum and seems to start sucking your organs inward....because I was losing the money of others as well as my own.
You have to experience it to appreciate how debilitating it is. It changed me and the way I trade today. For several years after, I couldn't even trade.
yeah.. when 'they" can get away with it.. they will .. simple as that.. exploiting those liquidity holes/ dry ups etc.. has to be quite lucrative. SPX options i've read can get hairy i heard..
you think its like the biggest MM book is just outright leveraging the exit door getting smaller and smaller exponentially?
I was running an index options book at a large bank at the time and don't seem to recall anything that extreme, unless you were running really large or long-dated positions. What do you mean by "get $10 over fair value"? Were you long or short gamma? What prevented you to from covering with index options or SPY options? Why not, at the least, cover your delta (especially, if you are long gamma)?Quote from ktm:
I trade the ES futures options - one of the most liquid contracts in the US. When we were dropping in 2007, I was actually sending instant messages to friends in Hong Kong overnight to try to talk them into taking the other side of some of my positions.
There was nothing out there. We'd be dropping like a stone and I couldn't get $10 over fair value for any option contract. I'd never seen anything like it. The feeling is one of physical pain that originates deep substernum and seems to start sucking your organs inward....because I was losing the money of others as well as my own.
You have to experience it to appreciate how debilitating it is. It changed me and the way I trade today. For several years after, I couldn't even trade.
Quote from sle:
I was running an index options book at a large bank at the time and don't seem to recall anything that extreme, unless you were running really large or long-dated positions. What do you mean by "get $10 over fair value"? Were you long or short gamma? What prevented you to from covering with index options or SPY options? Why not, at the least, cover your delta (especially, if you are long gamma)?
haha that almost sounds like common sense.. You can theoretically get cornered in something that has such a large complex so easily..
spy, spx, es, i mean if you had to you could look for relative substitutes ..
Quote from ktm:
I trade the ES futures options - one of the most liquid contracts in the US. When we were dropping in 2007, I was actually sending instant messages to friends in Hong Kong overnight to try to talk them into taking the other side of some of my positions.
There was nothing out there. We'd be dropping like a stone and I couldn't get $10 over fair value for any option contract. I'd never seen anything like it. The feeling is one of physical pain that originates deep substernum and seems to start sucking your organs inward....because I was losing the money of others as well as my own.
You have to experience it to appreciate how debilitating it is. It changed me and the way I trade today. For several years after, I couldn't even trade.
I would venture to guess that this kind of catastrophic risks is exactly the main reason why many investors are willing to pay fees to the professional trader managers. The investors really don't want to copy (even if legally allowed) the trading signals for placing their own trades by themselves in order to avoid fees. Just 2 cents!
Quote from OddTrader:
I would venture to guess that this kind of catastrophic risks is exactly the main reason why many investors are willing to pay fees to the professional trader managers. The investors really don't want to copy (even if legally allowed) the trading signals for placing their own trades by themselves in order to avoid fees. Just 2 cents!
i don't get this statement.. trading through out the changing liquidity of derivatives.. isn't anything a typical "investor" knows anything about..
most guys i think hand over their money because they don't want the responsibility of "taking losses" they can disassociate.. at least in their minds..