Writing options for a living

[Choad]

Re: Taleb - yep, the market just loves to stick you with a knife, then turn the handle.

Vic N went bust then the market almost immediately turned around. And how many short sellers got hammered 98-Jan 2000, then gave up.

For my trading, I'm trying to find longer term (6 months) opportunities to buy near-money calls and a few puts. Just a small percentage of my trading. We'll see how it works out.

Good luck to all.

C

 

[fengshui-123]

Someone here said each strategy has zero or negative expectation, but by combining them through adjustment can bring the overall expectation to positive, this statement does not sound correct. Let say you get "free trade" through adjustment, in the first place, what is the expectation of getting "free trade"? And, one more, your "free trade" actually trafe-off with somethings, not "free" at all. So where is the positive expectation come from?

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http://www.fengshui-123.com

 

[torontoman]

Quote from fengshui-123:

Someone here said each strategy has zero or negative expectation, but by combining them through adjustment can bring the overall expectation to positive, this statement does not sound correct. Let say you get "free trade" through adjustment, in the first place, what is the expectation of getting "free trade"? And, one more, your "free trade" actually trafe-off with somethings, not "free" at all. So where is the positive expectation come from?

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http://www.fengshui-123.com

Good Question!!

 

[Profitaker]

Quote from fengshui-123:

Someone here said each strategy has zero or negative expectation, but by combining them through adjustment can bring the overall expectation to positive, this statement does not sound correct.

In my view it's not correct. Nobody here (unless I've missed it and I doubt that) has come up with an example of how to turn a negative expectancy into a positive one.

Quote from fengshui-123:
somethings, not "free" at all. So where is the positive expectation come from?

The term "free" is often used to describe a spread that has no downside risk purely as a result of legging into it. But that isn't "free" at all, it just means the risk has been taken, it went favourably, and further risk capped.

 

[gbos]

Quote from fengshui-123:

Someone here said each strategy has zero or negative expectation, but by combining them through adjustment can bring the overall expectation to positive, this statement does not sound correct. Let say you get "free trade" through adjustment, in the first place, what is the expectation of getting "free trade"? And, one more, your "free trade" actually trafe-off with somethings, not "free" at all. So where is the positive expectation come from?

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http://www.fengshui-123.com

Not possible. The only thing close to it is Parrondo's Paradox.

seneca.fis.ucm.es/parr/GAMES/Paradox in Game Theory Losing Strategy That Wins.htm

 

[fengshui-123]

here you are:

Maverick74, do you actually creat "positive expecttion" through adjustment?

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http://www.fengshui-123.com

Quote from Maverick74:

Once you are in a trade and the underlying moves, you have the opportunity to make adjustments that will create a positive expectancy. For example, say you buy an ATM straddle today in EBAY. Now this trade in and of itself has a negative expectancy. But let's say EBAY rallies 6 pts over the next 3 days. If you sell some of your long deltas there, you are creating a positive expectancy trade. Not by much, but you will be positive. What you are essentially doing here is locking in profits, but you are still in the trade and your adjustment has improved your trade.

Let's take another example. Say you bought some wings today in EBAY on both the call and put side. Now, let's say EBAY rallies 6 pts over the next week. Now you go in and sell some inside premium creating a condor. You now have a positive expectancy. In reality what you did was leg into a condor at really great prices. But once again, you moved the trade over to a positive expectancy trade. Now, just because you have positive expectancy does not mean you will make money. In fact, you only have a slightly positive expectancy. But you see the point.

So the idea is to put on trades that down the road will allow you to make positive adjustments to your trade.

Now something else to add here. The timing of the adjustment and what the adjustment is will be very important. You can't just do anything to your trade to create a positive expectancy. This is where great traders are made. A great trader manages his positions very well and always adds value to his trades.

 

[Maverick74]

Quote from fengshui-123:

here you are:

Maverick74, do you actually create "positive expectation" through adjustment?

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http://www.fengshui-123.com

I can't believe this thread is still going. I don't understand what is left to be discussed here. But to answer the question. Yes, you can have two separate trades that on their own are both negative expectation trades. However, when combined, produce a positive expectation. Perfect example, trading into a long fly for a credit.

One could sell the ATM combo and wait to buy the strangle later. Their intention may not even be to buy the strangle but might choose to do so down the road. Both of these trades on their own have negative expectancy if we assume the market maker has priced these spreads to their favor. But if we can buy the strangle later and create a net credit, then obviously since the position as a whole has no risk, we can say this trade has a positive expectation.

I don't understand why this concept is lost on so many people. Of course I can already hear the rebuttals. But all you are doing is legging into a trade. My response, it doesn't matter. Every adjustment could be categorized as legging in. It's a subjective term. The important idea to grab here is that down the road, one can actually make trades that not only either lock in gains or add upside, but also remove risk. These combinations and permutations actually create positive expectancies as a whole over time.

 

[fengshui-123]

Mav,

first you must have profit before you can 'lock' your profit, so the question is what is the expectation of having the profit in the first place?

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http://www.fengshui-123.com

 

[Maverick74]

Quote from fengshui-123:

Mav,

first you must have profit before you can 'lock' your profit, so the question is what is the expectation of having the profit in the first place?

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http://www.fengshui-123.com

This has already been explained on this thread. Every trade begins with a negative expectancy period! Nothing we can do about this. However, many traders on here, myself included, make most of our money on our adjustments. In other words, when I put on trades, they are just a shell. I don't expect anything out of this shell. But somewhere down the road, I expect to have opportunities to morph this trade into something with positive expectancy.

I know a lot of you on this thread are scratching your head but this is one of the big differences between option traders and stock and future traders. We are not making binary bets. The nature of our speculation is not so apparent nor as black and white as outright directional traders. I don't use charts, TA or rarely bet on direction. I put my pieces on the table and play a game. I arrange my pieces in such a way so that I can make favorable moves down the road. Then I am patient and wait. I hope this explains things a little better.

 

[fengshui-123]

Mav,

Put it simply, when you have the "free-trade", you forgot about the lossing trade, that is why you think you have positive expectation, you only count the winning trade of course it must be positive expectation.