Why do you play options?

[kalikahuna]

Quote from Worldcrusher:

I have been trading for 13 years and have traded almost exclusively in options for the past 4 of those years. I first became interested in options when I took a year to study how casinos make money. While the casinos always have the statistical edge, there are some games in which a skilled player can narrow the casino advantage to less than .05%. Granted, there are not that many skilled players in the general population base. But even if there were, casinos would still do well.

I observed that there were no clocks on the walls, very few windows and the casino spares no expense to make the gambler comfortable. Obviously, they want the gambler to stay as long as possible. A gambler may win big, but given enough time, he/she will give it all back (kind sound like trading?).

I later came to understand that I was seeing time decay (theta) in action. Selling options offered a natural application of this concept to trading. Now I am the casino. Because time decay works for me, I can now trade non-directionally, because I will make money despite the movement in the market. Time decay and its direct application through the selling of options has enabled me to make the market my partner instead of my opponent.

I wish you all continued success in your trading!

Daryl

Hey daryl...you sound a lot like some blog that I read awhile ago that some Calendar Spreader wrote...talkin bout "becoming the house", etc...basically, like 26 super long posts about how people who bought options were gamblers and he, the calendar spread seller, was the house and would make money with OPM. it was pretty outdated tho, cuz he talked about making trades over the phone, not via IB, TOS, OX, etc.

back to the topic...options are good for the variety of strategies you can do...but they are not less risky than sticking your money in an index fund and watching it grow -3% to +13% a yr.

 

[Worldcrusher]

Quote from kalikahuna:

Hey daryl...you sound a lot like some blog that I read awhile ago that some Calendar Spreader wrote...talkin bout "becoming the house", etc...basically, like 26 super long posts about how people who bought options were gamblers and he, the calendar spread seller, was the house and would make money with OPM. it was pretty outdated tho, cuz he talked about making trades over the phone, not via IB, TOS, OX, etc.

back to the topic...options are good for the variety of strategies you can do...but they are not less risky than sticking your money in an index fund and watching it grow -3% to +13% a yr.

kalikahuna, Thanks for your reply. I was not that poster and I don't trade with calender spreads.

While I think that there is a distinct advantage for me to sell options (rather than to buy them) in accordance with my personal trading system, I do not cast judgement upon those who buy options because I understand that options are simply a highly versatile tool with a million and one uses (the swiss army knife of trading). Ultimately, performance of our trading account will tell us what works.

However, I think we can all agree that time decay is a far better friend than enemy.

Continued success,
Daryl

 

[AmbushHillbilly]

Quote from kalikahuna:

...back to the topic...options are good for the variety of strategies you can do...but they are not less risky than sticking your money in an index fund and watching it grow -3% to +13% a yr.

Might want to check recent history. The S&P was off about 47% over a couple of years not too long ago. May never happen again, but...

With options you can control how much you will loose so I would argue they are less risky, in competent hands, than an index fund. This is what drew me to them. Not that my hands are that competent (yet).

 

[kalikahuna]

Quote from AmbushHillbilly:

Might want to check recent history. The S&P was off about 47% over a couple of years not too long ago. May never happen again, but...

With options you can control how much you will loose so I would argue they are less risky, in competent hands, than an index fund. This is what drew me to them. Not that my hands are that competent (yet).

hahaha....yeah, i try to forget the whole 2000-2003 era. But in the grand 50 yr scheme of things...the avg "player" is better off sticking their money in the S&P as opposed to trying to buy puts and calls on stocks they like. I think for the avg joe who doesnt put in the time to learn options, options are significantly riskier than putting their money into index funds...obviously, the more you learn,the less risky it becomes as you learn what to do nd what not to do.

 

[Don87109]

Quote from AmbushHillbilly:

Might want to check recent history. The S&P was off about 47% over a couple of years not too long ago. May never happen again, but...

With options you can control how much you will loose so I would argue they are less risky, in competent hands, than an index fund. This is what drew me to them. Not that my hands are that competent (yet).

In general options are more risky than stocks, here's why:

With options for every winner there is a corresponding loser. That is, for me to win you must lose. With stocks everybody can win because of the inherent pyramid scheme.

In educated hands options are still better IMHO. But for the average person stocks are better even though as I previously explained they are just a piece of paper with no real value.

So you just gotta pick your poison.

Don

 

[Matt24SPFL]

Quote from Don87109:

In general options are more risky than stocks, here's why:

With options for every winner there is a corresponding loser. That is, for me to win you must lose. With stocks everybody can win because of the inherent pyramid scheme.

In educated hands options are still better IMHO. But for the average person stocks are better even though as I previously explained they are just a piece of paper with no real value.

So you just gotta pick your poison.

Don

Thank you, I don't have any experience with Options and that is a solid explanation.

 

[forex-forex]

Quote from Don87109:

In general options are more risky than stocks, here's why:

With options for every winner there is a corresponding loser. That is, for me to win you must lose.

With the advantage leaning towards the seller since options are "decaying assets".

 

[archon]

Quote from Don87109:

In general options are more risky than stocks, here's why:

With options for every winner there is a corresponding loser. That is, for me to win you must lose. With stocks everybody can win because of the inherent pyramid scheme.

Don

Sorry, friend, but you couldn't be more wrong. One of the most complicating factors involved with trading options is the fact that options are not a zero sum game. If you buy a call, and I sell you that call, we can both be right and we can both make money depending on how we hedge, our other positions, etc.

Because of this fundamental reality, it makes tracking and interpreting options order flow practically impossible. If a customer buys 10,000 calls, you have no way of knowing what he thinks the market is going to do. Is he betting that the market is going up? Is he legging into a spread? is he just getting long volatility and has no interest in the direction of the underlying? Truth is, you just can't tell.

FYI, I Recently found an interesting thread on this subject HERE

 

[AmbushHillbilly]

Quote from forex-forex:

With the advantage leaning towards the seller since options are "decaying assets".

This has to be one of the most popular trading myths out there. This would imply that liquid options are inheritantly mispriced.

There's been tons of debate here on ET on this topic already. Suffice it to say whether you buy or sell options doesn't make you successful - it's how well you trade.

 

[kalikahuna]

Quote from archon:

Sorry, friend, but you couldn't be more wrong. One of the most complicating factors involved with trading options is the fact that options are not a zero sum game. If you buy a call, and I sell you that call, we can both be right and we can both make money depending on how we hedge, our other positions, etc.

Because of this fundamental reality, it makes tracking and interpreting options order flow practically impossible. If a customer buys 10,000 calls, you have no way of knowing what he thinks the market is going to do. Is he betting that the market is going up? Is he legging into a spread? is he just getting long volatility and has no interest in the direction of the underlying? Truth is, you just can't tell.

FYI, I Recently found an interesting thread on this subject HERE

a lot of people like to say this, or something along the lines of "If you still think options is a zero sum game then you don't know options"

While I believe that your direct seller or buyer could also be a winner...i am inclined to believe that somewhere down the diluted line of exchange, someone didnt make money off of his or her options trade...they potentially bought peace of mind in case their stock holdings moved in a certain direction (in which case, they still win, because they bought a product they like), but I believe that in the end, there are close to as many losers as there are winners if you follow the money trail long enough.