Writing options for a living

riskarb · Sep 6, 2005

Nobody would trade if they didn't believe they were trading into a +expectancy.

Profitaker · Sep 6, 2005

Quote from Maverick74:

The risk? Every trade has risk. LOL. Come on man. We can't initiate trades with no risk, that's called arbitrage. We are not talking about arbitrage here.

In your butterfly example, if you bought the strangle, what is your initial risk? Time decay right? You don't need a 1% move, it could be any size move. If you can sell the straddle for a better price then what you lost in decay, then you legged into that fly at better prices.

Whether or not that trade as a whole has a positive expectancy depends on what prices you got. In this example, we don't need the stock to go up, but simply move. If the stock sat there and didn't move, then you would be eating the decay everyday. But I think we both agree that this trade alone, like all trades, has a negative expectancy.

I totally agree with ALL of the above post. However, you have seriously digressed from your initial assertion.... namely that a negative expectancy can be turned into a positive expectancy. You had the fascination of EVERYONE here. No wonder it's such a long thread.

But let's leave it there shall we ? No winner, no loser, just traders learning / sharing / debating. Which is the whole purpose of any BB.

Thanks Mav.

Quote from riskarb:

Nobody would trade if they didn't believe they were trading into a +expectancy.

Can you publish your last positive expectancy trade here ?

Profitaker · Sep 6, 2005

Duplicate

Profitaker · Sep 6, 2005

Profitaker · Sep 6, 2005

Duplicate

WTF is up with this pile of..... ?

riskarb · Sep 6, 2005

I thought my post was abundantly-clear with the bold-text. There is often a difference between belief/faith and reality.

riskarb · Sep 6, 2005

Quote from Profitaker:

Duplicate

WTF is up with this pile of..... ?

It's not ET, my friend. Take a long breath... (calm blue ocean, calm blue ocean...)

riskarb · Sep 6, 2005

Quote from Profitaker:

Can you publish your last positive expectancy trade here ?

Sure, sold Sep SPX 1210 puts and sold futures to get flat. Sold 300 basis over atm vols.

Maverick74 · Sep 6, 2005

Quote from Profitaker:

I totally agree with ALL of the above post. However, you have seriously digressed from your initial assertion.... namely that a negative expectancy can be turned into a positive expectancy. You had the fascination of EVERYONE here.

I think we got lost in semantics. There are two separate ideas I was trying to get across. One which was that the individual parts all have negative expectancy. But the sum of the parts can have a positive expectancy. Like Riskarb said, we would traders continue to adjust a position if they believe it wasn't allowing the position to move closer to a positive expectancy. Nobody wants to throw good money after bad.

And the reason this thread is so long is not because of this little detour, but rather many on ET thought there was some implicit edge in just selling premium. But let's not go back there.

fengshui-123 · Sep 6, 2005

Mav,

positive, zero, or negative expectation is a mathematical term, can you show us the mathematical proof how to get positive expectation from adjustment. Or some experts in financial engineering have proved it?

Quote from Maverick74:

Wrong. Has nothing to do with guessing. Has everything to do with adding positive expectancy to the position as a whole. For example, buying back short options trading at a nickel has nothing to do with guessing.

do you mean you can any how(randomly) add or leg in?

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