Writing options for a living
- Thread starter torontoman
- Start date
For the retail trader edge is certainly hard to come by, but every arbitrage performed on or off exchange proves there is edge to be had as a function of MM.
A wirehouse hits the bid on 1000 atm calls; the arb-house earns $.50 edge on the calls they bought. They sell 50k spot to hedge their directional risk until they can work the puts. A few minutes later they work a fill to sell 1000 atm puts at ($.10) -edge. They sell an additional 50k spot to complete the reversal at a gain of $.40 minus a dime in carry. The $.30 in edge is inviolate, save for a few pennies in rho.
This isn't a scalping transaction and it's done hundreds of times a day.
A wirehouse hits the bid on 1000 atm calls; the arb-house earns $.50 edge on the calls they bought. They sell 50k spot to hedge their directional risk until they can work the puts. A few minutes later they work a fill to sell 1000 atm puts at ($.10) -edge. They sell an additional 50k spot to complete the reversal at a gain of $.40 minus a dime in carry. The $.30 in edge is inviolate, save for a few pennies in rho.
This isn't a scalping transaction and it's done hundreds of times a day.
I think it is you who has a lot to learn. Why would distributional assumption have anything to do with convergence? Imagine this - if there is no reason why options are priced unfairly, i.e the advantage is on the seller side, then everyone would become a seller, thus decreasing this differential to the point when the options are fairly priced.
The real casinos are the MM. Like Steve Wynn, they sell bets worth a dollar for a dollar five. MM will one up you, gladly taking those same bets off your hands for ninety-five cents.
As for looking for arbitrage opportunities, I see it as a waste of time for us retail traders.
I haven't seen any of those $1.05 fractional-bets... must be a newfangled marketing gimmick.
It's difficult, but free-money usually is.
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.
First of all, your response makes zero sense when attacking my statements, I have no clue at all as to what legitimate point that you are attempting to make, but this is my response to the ignorance in spite of it:
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.
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. However, there is one thing that no one can predict and that is the black swan. Black swans will never help sellers in the long run; Niederhoffer. Keep your undereducated comments to yourself
Thanks,
Management.
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.
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. However, there is one thing that no one can predict and that is the black swan. Black swans will never help sellers in the long run; Niederhoffer. Keep your undereducated comments to yourself
Thanks,
Management.
