Writing options for a living

[Maverick74]

Quote from Samson77:

Maverick

I agree with you and you are right about the ability to trade without emotion or second guessing yourself but I think that a lot of that is overcome IF you have a GOOD process that you can see works over and over.

Call it an edge call it a banana I don't care.

Just as an example :

Take any pattern set up in John Murphy's book ie: a head and shoulders.

Now let's say you where patient and precise and totally discipline and only traded THIS pattern the exact way that Murphy described it!

Do you think over the course of 10 trades you would be profitable assuming that you stuck to the parameters exactly as outlined for stops and targets?

I am not suggesting a Head and Shoulders pattern all by itself with no other filter is all you should use BUT it is pretty darn close to 70% accurate and that to me is an edge!

Samson, I have to be forthright with you here and tell you I am not a big believer in TA. So I am biased. One of my problems with TA is that it is way too subjective. For example, this head and shoulders you describe from Murphy's book can be interpreted 100 different ways from Sunday. There is no way to get two technicians to see the same thing. Every guy will interpret it differently. Now I know some head and shoulder patterns look so obvious like they are textbook examples taken from a book. Even those can have attributes to them that can be interpreted differently.

I'm not saying you can't use that pattern to set up a trade with precise entry and exit levels. And that perhaps more often then not, that pattern may at some point prove to be profitable.

However, the whole world can see that pattern develop. Especially as you say that it resembles the EXACT pattern that Murphy describes it. Are you saying that the rest of the world sees this pattern and chooses to ignore it? If so, why do they ignore it?

See everyone with a computer and tradestation can find these patterns, this is why I don't call them edges. Because we all have access to them. It's not proprietary. An edge is something I can attain that you can't. That's called an economic advantage. Anybody can find stocks that are breaking through moving averages or they can scan for doji's or combine a moving avg with a doji and an RSI reading. There is no economic advantage here. I'm not saying you can't use these indicators or readings to trade profitably, I'm just saying that these things do not constitute what I call an edge.

 

[Maverick74]

Quote from thenewguy:

What about undestanding the relationship between two products better than anyone else in the world? How could that not be "edge" by your definition?

Too subjective. How do you know that you understand them better then anyone else in the world?

Or recieving and processing information faster and more accurately than other people?

Yes, if you are referring to technology, then yes, that is an edge. A true edge at that.

 

[Lucrum]

Quote from murray t turtle:
====================
Mr moderator;
If you dont mind saying briefly how you blew up your account selling; options
takeover, or to big a position,or not having /executing a stop loss?????

I was over leveraged and had no stop. I was also way over confident in the outcome. Largely because the underlying based entry I was using worked a very high % of the time.
They were options on CME FX futures.

Edit: I didn't mention it earlier but I was also going through a lengthy divorce at the time. Which probably didn't help matters either.

 

[riskarb]

Oh Man... I leave for a couple of hours and the drapes are on fire and the babysitter is knocked-up!

Most ppl who trade options are not dedicated to the pursuit and are net-losers. Most make plays on a whim; or are active hedgers of their equity portfolios. I would imagine that no more than 3-4% are profitable on their options trading over a 5 year period. I am not referring to put-sellers looking to lower their cost-basis on stock.

Mav is right -- I know of only a few upstairs traders who are profitable. One is wildly-profitable, but takes up to 30% monthly DD! To make matters worse; I can think of only 5 out of 12 MMs I talk to that even admit to profitability. Those 5 also say they're packing 12", so take it for what it's worth.

 

[Samson77]

Maverick

Fair enough I see your point and can understand it, many people have the same problems and arguements about the subjectivity of T.A. and yes it is a combination of Art and Science if you will but that's where experience plays an important role.

If it where easy then your right everyone would be doing it and it would lose it's advantage / edge but the fact does remain MANY traders do make a good living seeing through the subjectivity of T.A.

 

[thenewguy]

Oh Man... I leave for a couple of hours and the drapes are on fire and the babysitter is knocked-up!

Most ppl who trade options are not dedicated to the pursuit and are net-losers. Most make plays on a whim; or are active hedgers of their equity portfolios. I would imagine that no more than 3-4% are profitable on their options trading over a 5 year period. I am not referring to put-sellers looking to lower their cost-basis on stock.

Mav is right -- I know of only a few upstairs traders who are profitable. One is wildly-profitable, but takes up to 30% monthly DD! To make matters worse; I can think of only 5 out of 12 MMs I talk to that even admit to profitability. Those 5 also say they're packing 12", so take it for what it's worth.

Sorry, she was asking for it tho!

I agree with you, but I also think that the results are somewhat skewed by people like this:

http://www.elitetrader.com/vb/showthread.php?s=&threadid=53209

Also, it's probably important to note that a large amount of successful options traders have moved on to greener pastures in the last 5 years. There definately is lower hanging fruit out there right now.

 

[union1411]

Quote from Maverick74:

Samson, I have to be forthright with you here and tell you I am not a big believer in TA. So I am biased. One of my problems with TA is that it is way too subjective. For example, this head and shoulders you describe from Murphy's book can be interpreted 100 different ways from Sunday. There is no way to get two technicians to see the same thing. Every guy will interpret it differently. Now I know some head and shoulder patterns look so obvious like they are textbook examples taken from a book. Even those can have attributes to them that can be interpreted differently.

I'm not saying you can't use that pattern to set up a trade with precise entry and exit levels. And that perhaps more often then not, that pattern may at some point prove to be profitable.

However, the whole world can see that pattern develop. Especially as you say that it resembles the EXACT pattern that Murphy describes it. Are you saying that the rest of the world sees this pattern and chooses to ignore it? If so, why do they ignore it?

See everyone with a computer and tradestation can find these patterns, this is why I don't call them edges. Because we all have access to them. It's not proprietary. An edge is something I can attain that you can't. That's called an economic advantage. Anybody can find stocks that are breaking through moving averages or they can scan for doji's or combine a moving avg with a doji and an RSI reading. There is no economic advantage here. I'm not saying you can't use these indicators or readings to trade profitably, I'm just saying that these things do not constitute what I call an edge.

I started off with extreme skepticism of TA. Then I started to see the signficance of it. Now I'm back to skepticism - though I do like RSI, Std dev, ATR, and MACD. Heck, I guess even volume is considered TA.

I think - and I'm just guessing here - that most daytraders use TA because fundamental analysis is not something one can learn from a 100 page book sold at the airport newstand. Financial report analysis, understanding macro-economics, etc., takes a bit of time and a decent amount of coursework in college.

You are more likely to see me reading footnotes in a 10k than using Fib/astrology stuff.

 

[union1411]

Quote from Samson77:

Maverick

Fair enough I see your point and can understand it, many people have the same problems and arguements about the subjectivity of T.A. and yes it is a combination of Art and Science if you will but that's where experience plays an important role.

If it where easy then your right everyone would be doing it and it would lose it's advantage / edge but the fact does remain MANY traders do make a good living seeing through the subjectivity of T.A.

Some people get lucky and put $1,000 on red because the roulette ball came up black 9 times in a row. They then say, "Man, you have to read the past numbers on the screen." Cracks me up.

 

[Samson77]

Quote from union1411:

Some people get lucky and put $1,000 on red because the roulette ball came up black 9 times in a row. They then say, "Man, you have to read the past numbers on the screen." Cracks me up.

Some people see 9 blacks and bet it again understanding that the balls doesn't know their are 9 blacks.

Personaly I always bet the zero because it's the only way the HOUSE can make any money.

 

[torontoman]

Has anyone read James Cordier's book on writing naked options. He is advocating writing options 3 to 5 months away. Although boring, he claims that this is a money-maker. For example, the February 90.00 crude oil call, which expires in January, is trading at about $600. So write this option NOW, and keep going every month after. You could write at strike prices ridiculously high because it's so far. So, you keep dong this every month. Come January, income starts coming in.

What do you think? and Secondly has anyone read it?