Writing options for a living

[riskarb]

Quote from saturnine:

Sorry Arb

NP, you were both being bad

 

[sle]

Quote from saturnine:
It's called an outlier and an outlier will never help sellers my friend. In the long run they will only benefit buyers; why do you think the old Martingale method can never win? Distribution (and the fact that it is not Guassian) has EVERYTHING to do with profit potential in trading, but is people like you that will lose their shirt many times over before realizing it.

You think insulting me would change something? I was merely making a point that in general options are priced well with regards to the information in the marketplace, disregarding distributional assumptions.

Black Swan events or anything else you want to call them are an issue with estimating kurtosis, which is extremely hard to do. As I said before in this thread, trading kurtosis is a very difficult game and is something that I would avoid doing at all costs. Now, since as a marketmaker, I am forced to make decisions regarding the wings, my preference has allways been being long the call/reciever skew and short the put/payer skew (in the rates world), but I do not actively sell or buy far OTM options.

Quote from saturnine:
Assuming that options are priced fairly as you stated, then no one but MM's can win in the long-term.... This isn't always the case however as their are excursions from fair pricing that lead to buying and/or selling campaigns which can better the odds.

Did I in any shape or form advocated selling options? Nope. I was merely making a point (again) that distributional assumption has nothing to do with efficient pricing in liquid products, it would only change you hedging approach. You can also add that there is no true market makers in the current markets and every trader is forced to take a market view. The trick is that MMs have a better knowledge of the flows in the market, so they tend to do a bit better.

 

[sle]

Quote from riskarb:

NP, you were both being bad

a spanking is due, i presume?

ps. a coworker retiered today, so i am drunk at 6 pm on Monday. Can't even think of what's gonna happend tomorrow..

 

[riskarb]

Quote from sle:

a spanking is due, i presume?

ps. a coworker retiered today, so i am drunk at 6 pm on Monday. Can't even think of what's gonna happend tomorrow..

No spanking after my "pulsating" comment... Don't want to appear too metrosexual.

6pm?! All Manhattanites are lightweights.

 

[Maverick74]

Holy shit. F*ck this thread is active. Freaking 4 to 5 pages of since I left. I there are actually more posts in here then in chit chat the last few days. What the hell is going on?

I don't even know where to start so I won't. LOL. I'll just comment that the CME study someone posted earlier was the biggest bunch of nonsense I have ever seen. What a joke. I can't believe people do studies on the percentage of options that expire worthless as if that means something. I expect Wade Cook to do these studies, not the CME. Oy vey.

 

[torontoman]

Maverick brings up a good point.

How is it possible that all those options expire worthless? How can that happen? If IBM is trading at 100. all call options from 30 to 99 are worth something at expiration day. All put options from 180 to 101 are worth something on expiration day. So why this high percentage of options expiring worthless?..or am I an idiot.

 

[sle]

Quote from Maverick74:

I'll just comment that the CME study someone posted earlier was the biggest bunch of nonsense I have ever seen.

How could you say this! If it comes from good people at CME, it's gotta be good. It's like with wine - if it's got a cork, it gotta be good.

 

[winter]

Quote from torontoman:

How is it possible that all those options expire worthless? How can that happen? If IBM is trading at 100. all call options from 30 to 99 are worth something at expiration day. All put options from 180 to 101 are worth something on expiration day. So why this high percentage of options expiring worthless?..or am I an idiot.

It sounds like you are assuming that there is an equal distribution of open interest across all strike prices which isnt the case.

 

[torontoman]

Excuse my ignorance.

So, when they say "75% of options expire worthless." What are they talking about? The actual security OR the open interest.

 

[smilingsynic]

Quote from riskarb:


There were millions taken from the MMs at the cboe/amex/pse during the COMS/PALM spinoff -- all from retail schlubs trading from their home-offices. The options in COMS were crossed/inverted for weeks, leading up to the spinoff. Typical markets were "2.75x2.50" with 20 cars guaranteed. I personally know a dozen guys who made >1mil collectively the first week of the crossed-quote. By the time they worked out the autotrading app the link was made, canning all crossed markets.

That's news to me--and good news.

The home team does not always win!