Quote from riskarb:
Yeah, that Merton was wrong. Great find.
That excerpt was from O'Connell, THE BUSINESS OF OPTIONS. The rest of the book is OK.
Writing options for a living
- Thread starter torontoman
- Start date
That excerpt was from O'Connell, THE BUSINESS OF OPTIONS. The rest of the book is OK.
i love this. i always wanted to be part of a conspiracy. now the truth can be told. mav and i are actually siamese twins. we also trade against each other so that we can honestly say that one of us is always profitable. now you all know the secret to positive expectancy.
here's how you can tell that John and i are not the same person. ask us which ends of the political spectrum we occupy. here's a hint: i'm a little left of che guevara.
i guess this is possible but highly improbable. since +expectancy resides with the trader there is no reason that the selection process cannot be where the edge comes from. i've never met anyone that simply opened positions and held them to expiration with no adjustments and consistently delivered profits. this is the case of someone who regularly finds mispriced options and is able to capitalize on them. it's not really the sort of situation i've been discussing.
if markets are efficient then the slippage and commissions are the only factors that make trading a negative expectancy event. that is why professionals are acutely aware of managing costs. driving down a commission by a nickel or so per contract translates into significant long term cash savings.
i think i see your point and maybe this is splitting hairs, but it is vital to see a trade as negative expectancy from its' inception. if you assume otherwise the odds will erode your capital. if you do nothing with the trade but simply hold it until expiration or some random point in time, the effects of negative expectancy will catch up with you.
if we accept that the market is almost always efficient ,then at any moment in time we have to assume that the current price is the correct fair value. but the fact that we are not locked into a trade until the bitter end is what allows for skill to creep into the equation.
think of betting at a race track. studies consistently show that horses on average win with the same odds as forecast by the betting line. because of the state take that means that any bet is a negative expectancy. but imagine if you can both lay odds and change your bet during the race. that's what the financial markets allow you to do. if the favorite stumbles out of the gate and you are "short" then you will likely be able to cover your short for a profit (i.e. the horse's odds of winning drop momentarily after the stumble) even though the horse might regain composure and still win the race. it's that uncanny ability to set oneself up to capitalize on opportunity and the ability to execute when one of those opportunities emerges which distinguishes the great traders from the rest of the crowd.
it is vital to see a trade as negative expectancy from its' inception. if you assume otherwise the odds will erode your capital.
no, when a trader select a trade he always think he has +expectancy at that particular moment othetwise he should not put on.
if you do nothing with the trade but simply hold it until expiration or some random point in time, the effects of negative expectancy will catch up with you.
yes, becuase it is nonlinear dynamic, initial +expectancy has no guranttee +expectancy for the whole trade.
if we accept that the market is almost always efficient ,then at any moment in time we have to assume that the current price is the correct fair value. but the fact that we are not locked into a trade until the bitter end is what allows for skill to creep into the equation.
efficient or not is model dependance, no model no such thing.
no, when a trader select a trade he always think he has +expectancy at that particular moment othetwise he should not put on.
if you do nothing with the trade but simply hold it until expiration or some random point in time, the effects of negative expectancy will catch up with you.
yes, becuase it is nonlinear dynamic, initial +expectancy has no guranttee +expectancy for the whole trade.
if we accept that the market is almost always efficient ,then at any moment in time we have to assume that the current price is the correct fair value. but the fact that we are not locked into a trade until the bitter end is what allows for skill to creep into the equation.
efficient or not is model dependance, no model no such thing.
what a trader thinks is irrelevant to expectancy. i may buy a lottery ticket with the "expectation" that i will win. that doesn't change the true odds.
efficiency is a function of markets not models.
what a trader thinks is irrelevant to expectancy. i may buy a lottery ticket with the "expectation" that i will win. that doesn't change the true odds.
market is not like lottery system which has fixed probability model, nondynamic.
efficiency is a function of markets not models.
maybe I should say efficency is just one state of the market, and the model have to make this assumption in order to proceed its explaination of market.
market is not like lottery system which has fixed probability model, nondynamic.
efficiency is a function of markets not models.
maybe I should say efficency is just one state of the market, and the model have to make this assumption in order to proceed its explaination of market.
Good day dummy-variable
This is not possible. Either the trades had positive expectancy from the beginning or else you can’t make a positive expectancy position with negative expectancy trades.
These facts are already priced when you bought the call.
This is possible but involves prediction and pricing skills. In other words the trader will execute trades only when he has positive expectancy.
Regards
This is not possible. Either the trades had positive expectancy from the beginning or else you can’t make a positive expectancy position with negative expectancy trades.
These facts are already priced when you bought the call.
This is possible but involves prediction and pricing skills. In other words the trader will execute trades only when he has positive expectancy.
Regards
If you can explain how that can be done PRIOR to a favourable move in the underlying I'll eat my hat (literally in front of you) !
D-V, this is and has been the crux of the argument. We all know how do do it, and everyone agrees it can be done AFTER a favourable move in the underlying, but NOT before.