Options

This is a discussion on Options within the First Steps forums, part of the Reception category; Now, as anyone that has seen anything I have written in the short space of time I have been publicly ...

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Old Aug 17, 2012, 5:03am   #1
Joined Aug 2012
Options

Now, as anyone that has seen anything I have written in the short space of time I have been publicly posting here will know, I think trying to trade independently is ridiculous. I think you will lose, and let's remember, you will lose YOUR money.

I am not here selling anything or making anything or anything like that. I actually want to debunk the vast majority of what I see here. Which already ironically makes me sound like every other c&nt.

Options are a non-linear product. That is an amazingly simple, statement of fact, and cannot possibly be disputed. If you don't know what that means - IMMEDIATELY GIVE UP ON OPTIONS as being your traded product of choice until you do some research. So many questions are asked here that are very easily answered with just a tiny bit of work.

If you want to learn, tryh youtube, but try searching for things like MIT Introduction of Calculus, intro to finance, intro to stats, whatever you want to learn.... A lot of university are now publishing almost entire courses. They are brilliant. Have a look at this to give just a tiny tiny tiny hint of what is there for free....

**


Options can be a brilliant trading tool. They are very efffective, can be cheap, and are a geniunely good product to know about for the private individual. But, you have to at least have a rough idea what you are trading. Let me clarify, you shouldn't be trading options. Buying an option to give you some leverage is not necessariyl a bad idea. Options are essentially insurance products on price. Try and think in insurance terms - you cannot afford that one big event to go against you. It would make you lose more than realistically you can happily deal with. However, they do allow you leverage when you buy them... They allow you to basically bet on a future outcome for a small original outlay. That's not necessarily bad - but remember it is a bet....

Look at oil now.... say it is 95.5. Well, oil is an incredibly voluatile market where nearly everyone would know more than you. It's not sensible to risk everything, or even a lot. However, this is where options can help you. Say you think it is going to go to $98 before end of september. Well, you can buy an option that will pay you off if this happens. If it doesn't, sure, you lose. But you know what you are risking from the off.

If you don't acutely understand what the greeks are, what a vol surface is, what a delta position is, what basis risk, hedging risk, liquidity cost, gap risk and a load of other things I have forgotten... Well, if you do not understand them, NEVER sell an option naked. You have no idea what you are doing - you're insuring an event you have no way of appreciating the probability of.


Anyway, I know even now I am waffling and this will be skipped by most. What I would implore everyone to do is ask the highly skilled people here there opinion. If someone criticizes this post, fine, but ask why? Ask what the fundamental economics is behind it.

Trading is a sexy word, trader is a sexy profession. It simply isn't like that for 99.9999999999% of people. Yes, you can earn good money at a bank. But then you have to be very knowledgeable and highly qualified to even get a chance.

To give an idea, and this is real world and someone I know very well, this was what it took and where they are.....

10 A's, 2 B's GCSE
3A's, 1B A-Level (old style a-levels)
BSc Physics
MSc Physics
Graduate programme at what was the worlds biggest derivative broker (2 yrs) (Completed all FSA regs etc)
German investment bank (analyst for 1 year - junior trader for 2 years) (completed CFA)
US investment bank (junior trader - basic flow stuff, v limited VaR - 1.5 years) (completed internal quantitative programme with structurng group)
Asian investment bank (last 3 years)

And this guy now earns probably £75-100k basic, bonus I would have no idea.

There is no easy way to make millions. There just isn't. He earns good money, because he has always done the hours, worked hard, and been reliable. That's probably as important as his skills on the market!!!
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Old Aug 17, 2012, 5:08am   #2
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Re: Options

justtellingitasitis started this thread Links here:

Free Online Course Materials | Mathematics | MIT OpenCourseWare



http://uqu.edu.sa/files2/tiny_mce/pl...&%20Rennie.pdf

Just some really simple results that hint at the MASSIVE wealth of stuff out there for free.
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Old Aug 17, 2012, 5:14am   #3
Joined Aug 2012
Re: Options

justtellingitasitis started this thread If anyone disagrees; thinks I am a ****, wants to refute everything I have said, then please do.

I would love to see a real, genuine discussion here involving the new members and the very skilled, very knowledgable old timers, and to start a true thread to share information.

Apart from bull****ter$ I don't think that ever happens. Everyone here should be free to ask questions, obviously, that the point of the forum, But then there also needs to be a level of realism in responses.

Sorry if this just seems like bubble-bursting, but hopefully I will burst some peoples bubble before they lose all their cash.
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Old Aug 17, 2012, 11:17am   #4
 
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Re: Options

What's your point, please? I am not really sure what you're trying to achieve, so I can't tell whether I am sympathetic to your purpose or not...
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Old Aug 17, 2012, 11:27am   #5
 
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Re: Options

I think he's just saying that options are mathematically complex and you shouldn't sell them if you don't understand the associated risk profile, you're up against very smart bods when you trade them, and that if you do decide to have a go you should have realistic aspirations in terms of returns i.e. not meeelyons. It's just done in he most long winded way I've ever seen.
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Looks like Scose be trollin' 'aaaaard tho... as far as some are concerned!
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Old Aug 17, 2012, 11:31am   #6
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Re: Options

His point is to 'debunk the vast majority of what I see here'. However, not much has been discussed about options and I dont think a lot of retail clients even use them.
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Old Aug 17, 2012, 11:39am   #7
 
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Re: Options

Options have been discussed at length here in a good few threads. There are vol surface charts, there is discussion on pricing, there is discussion on the greeks in both the academic and strategic contexts, there is discussion from people who use them solely to gain exposure and leverage based on a view in the underlying...

This stuff just doesn't come up often because the vast majority of the site is TA FX based with market profile/order flow scalping type trading coming in a close second. Options cannot contribute to these strategies and as portfolio theory doesn't really come up there's no real reason to discusses options as a hedging tool.

I think what people (or was that just me?) were mainly interested a while ago was how a desk might push spot to benefit from their own options positions... if everyone is trading spot fx or scalping front month futures why would anything else matter?
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Old Aug 17, 2012, 11:54am   #8
 
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Re: Options

Ah, cool... I have all sorts of sympathy with the OP's view.

At the same time, options ain't rocket science. Not brain surgery either. If want to do them right, you do need to do more work than drawing some wiggly lines on a chart. That, IMHO, is the real problem, rather than the complexity of the product. It's just so much easier to be lazy and gravitate to the low-hanging fruit, which is what happens most of the time.
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Old Aug 17, 2012, 12:01pm   #9
Joined Aug 2012
Re: Options

justtellingitasitis started this thread My apologies team - couple too many largers apres work. Should not have posted! However, my waffling point was summed up admirably by scose-no-doubt.

It wasn't intended to be arrogant, it was intended to be helpful. In that I failed badly!

As it happens, I now feel like absolute death, and have done for the last five and a half hours, and I'll continue to feel like that for the rest of the day. It's my penance for posting when drunk.

I'll go an sit in the idiot corner for a bit and have a think about what I've done
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Old Aug 17, 2012, 12:11pm   #10
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Re: Options

This site becomes a whole new experience when one is totalled...enjoy it.
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Thanks! The following members like this post: Big Stones , the hare
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