Quote from LoosenUp:
Totally agree with this argument. Maverick and riskarb, with all due respect, your reputation is really at risk here for both your interpretation of expectancy. I think you two have it all wrong. I am surprised that with all your knowledge, you can be so wrong with your interpretation of expectancy. What is important is your "initial" expectancy at the initiation of the position, not subsequent changes in expectancy which is a sure thing when price changes. By the way, I am a newbie in options but I know what expectancy is. Maybe you meant other things but use the word "expectancy" wrongly.
this is so painful to follow... Maverick and riskarb have always been helpful. i admit, the stuff they deal with are beyond my options knowledge, but just because i don't understand them, i don't try to pretend they don't exist. people ask them technical questions about options and they always come back with answers.
lately, i get the impression that people are asking them to lay down step by step how they trade. and when a step is not understood, they get challenged /insulted as if they don't understand the simple meaning of a "word" such as expectation. expectation of what? of the movement of the underlying? of the direction of the IV? of the profitability of the position?
Maverick has practically given the farm when he answered you on 8/3, loosenup. he said he puts on a position and whatever the market does, he puts on another position, all the while, keeping track of his exposures. one position's certain greek exposure may be offset by another. who knows? only he does, coz he's the one putting them on. maybe he's not always locking in a profit, maybe sometimes he's cutting losses. i don't know and i don't think he should be teaching everyone how he handles every situation in the market. he has amassed a great deal of experience over the years and when a certain thing happens, he knows what to do (or what not to do).
Riskarb has a journal and puts on trades everyday. many times, he has short explanations on what he's doing which i think is hedging his exotic binaries to protect the loss of his premium. i don't understand what he does and i'm certainly not about to go there and start questioning his trades on the simplest of concepts. i would look like an elementary student that got lost and ended up in a physics classroom at MIT.
Maverick mentioned a few posts back that options are not like stocks/futures. because they're multi-dimensional, there's opportunities that exist to capitalize on certain situations. recent example was when chiguy found a mispricing? of the straddle and the strangle on Ebay prior to earnings. it didn't gurantee that it would be a profitable trade, but it provided a way to pick the "better" position.
think of google prior to the last earnings announcement. you could have gone short or long the stock prior to earnings and if you were short, you'd have made money as goog went down after earnings. in the options, i think if you were a buyer (even of puts) that most likely you'd have lost money.
if you can, try to have access to the last wizards book by schwager called stock market wizards. read the section on john bender and how he "exploited" the B/S formula assumptions about price movement
expectations (specifically on gold). questioning the obvious...
i could be wrong on many things on this post, but all i'm saying is that let's give respect to the people that have been more than generous with their knowledge. that's just in my humble opinion...
Peace.
