Writing options for a living
- Thread starter torontoman
- Start date
Ok, it's taken me 3 days to read through this post - and it's been a fun 3 days at that!
Now, I've got to know the answer to this - all initial trades are negative expectancy (easy enough to understand) and become positive expectancy when adjusted, but only if trade has moved in our favour (i.e. could have been closed for a little profit). So, here is the big question - if the trade goes against us, does it become an even more negative expectancy trade (or is this only possible by me adjusting it so badly that it then becomes more negative expectancy)? If so, does one adjust or just get out? Iow is there any point staying in a trade that now has a larger negative expectancy than when it was first opened?
I hope some poor soul will take mercy on me and answer although it is a while since anyone last visited.
ra1
Now, I've got to know the answer to this - all initial trades are negative expectancy (easy enough to understand) and become positive expectancy when adjusted, but only if trade has moved in our favour (i.e. could have been closed for a little profit). So, here is the big question - if the trade goes against us, does it become an even more negative expectancy trade (or is this only possible by me adjusting it so badly that it then becomes more negative expectancy)? If so, does one adjust or just get out? Iow is there any point staying in a trade that now has a larger negative expectancy than when it was first opened?
I hope some poor soul will take mercy on me and answer although it is a while since anyone last visited.
ra1
You know, I asked the same thing myself. I consulted with others and after comtemplating and pondering their responses, all successful traders (aka net making money) and ex-MM/floor traders, the consensus is that it's just one of those things in life. Let me use the blackjack analogy. Any one who understands the house edge in blackjack will know the player starts with neg expectancy not using basic strategy/card counting. Using those correctly should put the player in a positive expectancy situation. But does it mean the player is going to win in every hand? Obviously not. Just that in the long run, the player will win. Same in trading. I don't know if my trades are inherently positive expectancy after I've done something to them, but if I tally up after expiration and my portfolio is positive, well there's my positive expectancy. It took me a while to get it, but try not to think every trade must be positive expectancy, but rather try to get your portfolio into positive expectancy.
Thanks for your response jj90. My dilemma is a bit more deep seated than appears in my original question. I don't expect every trade to turn into +ve expectancy, lol, althouhg that would be fantastic and I could stop reading these boards!
The question should have read "is there any point adjusting a trade that is going against me?" or would it be best to just get out and open a new one? Iow once a losing trade is adjusted, what happens to its expectancy? In this whole thread mention was only made for adjusting a winning trade (rather than just closing it for a profit), working on the premise (I refer to maverick47's many excellent posts) that it is better to turn a negative expectancy into a positive one rather than open a new trade and start from -ve expectancy again. And when does one finish adjusting - after 2 or 3 or 4 adjustments (assuming each creates a little more +ve expectancy)?
ra1
The question should have read "is there any point adjusting a trade that is going against me?" or would it be best to just get out and open a new one? Iow once a losing trade is adjusted, what happens to its expectancy? In this whole thread mention was only made for adjusting a winning trade (rather than just closing it for a profit), working on the premise (I refer to maverick47's many excellent posts) that it is better to turn a negative expectancy into a positive one rather than open a new trade and start from -ve expectancy again. And when does one finish adjusting - after 2 or 3 or 4 adjustments (assuming each creates a little more +ve expectancy)?
ra1
Positive expectancy depends on being right, and when wrong, cutting losses. There is no point in a trade where one has to stop adjusting. I find that if you are in a losing trade, why are you not pulling capital out? Adjustments serve to reflect a change in sentiment, say you are now bearish instead of bullish. Adjustments won't give one positive exp just because. I didn't read the whole 125 pages of the thread, but I understand why maverick would say that, my own experience tells me too, but a losing position is a losing position.
It can be summed up as this, only adjust when you have a reason. Just because one can adjust, doesn't mean it is the right decision. Hope this helps.
It can be summed up as this, only adjust when you have a reason. Just because one can adjust, doesn't mean it is the right decision. Hope this helps.
Hi jj90
I was referring to adjusting when there is some profit in the position. What maverick47 was saying is that a -ve expectancy trade can be turned into a +ve one by adjusting when there is some profit. Obviously your prognosis for the underlying plays a part but knowing which is the optimum adjustment when there is some profit and combining that with your prognosis should improve the expectancy for that particular position. I wasn't advocating letting a losing trade run, but wondering when to call it quits, iow when to not bother adjusting a losing trade as well as when to stop adjusting a winning one. The answer may be as simple/complex as "that's the art of trading". I appreciate your feedback - many thanks.
ra1
I was referring to adjusting when there is some profit in the position. What maverick47 was saying is that a -ve expectancy trade can be turned into a +ve one by adjusting when there is some profit. Obviously your prognosis for the underlying plays a part but knowing which is the optimum adjustment when there is some profit and combining that with your prognosis should improve the expectancy for that particular position. I wasn't advocating letting a losing trade run, but wondering when to call it quits, iow when to not bother adjusting a losing trade as well as when to stop adjusting a winning one. The answer may be as simple/complex as "that's the art of trading". I appreciate your feedback - many thanks.
ra1