Plain Vanilla Options Trades.

[Profitaker]

Splitlink

There is nothing remarkable about selling a DOTM Put (or call for that matter) and watching it expire worthless. If you choose an option with a delta of 0.10 then the odds are extremely high (9 times out of 10) that it will expire worthless. It's the same a laying a horse at 10/1 not to win. If the odds are priced correctly, then over the long run you will win 9 times and lose once but the loss will equal the gains made on the previous 9 occassions. So it makes no difference whether you buy or sell options, as you will ultimately break-even before costs.

Consider also the extreme events, so extreme that they cannot be modelled.

DB

But results (per se) are uncorrelated. For example, an up day no matter how large, is no more likely to be followed by another up day than it is likely to be followed by a down day.

I agree what you're saying re large moves, in other words a large move is likely to be followed by another large move, but that is a statement about volatility rather than correlation, surely ?

I've never come accross this theorm in option trading.

 

[PKFFW]

I forgot to mention.....

An Edge impliles the holder of the edge is able to make consistent profits and not losses, including sporadic losses. It implies the holder of an edge is able to make every trade profitable. This to a lot of people is unbelievable. But it is true. And I am proving it.

Consistent profits cannot be made if the odds are against the trader. The trader has to have the odds in his favour in order to be able to make consistent profits. Option buying contains risks that work to the disadvantage of the trader, because 85% of all options expire worthless, because a buyer has 1 chance in 3 of getting it right and because the odds in favour to fhe writer are 3 out of 4.

I cannot make it clearer than that.

So let me get this straight.

1: You say that to have an edge you must be able to make every trade profitable.
2: You say consistent profits cannot be made if the odds are against the trader.
3: You say that option buying has the odds agains it because 85% of the time the option expires worthless.(though why you bring this up is questionable as not a single one of your trades has been held till expiry)
4: You then say the writer has 3 out of 4 chances to get it right.

Now your argument seems to be that the buyer can't possibly have an edge because 85% of options expire worthless. Your definition of an edge being that every trade is profitable.

So how then can a writer of an option have an edge? If we are talking odds, a 3 out of 4 chance to get it right means the writer will get it wrong 1 out of 4 times. Therefore not every single trade is profitable and by your own definition an edge means that every trade is profitable.

So again, by your own definition of an edge, posting X number of profitable trades in a row does not prove the edge is inherent to nor specific to the writing options. The edge that X number of profitable trades in a row would prove is that you have the ability to accurately call the market direction and make profitable trades.

Cheers,
PKFFW

 

[SOCRATES]

I Understand. I think "needless complexity" is ambiguous and applies to the ability to determine the difference between important and unimportant information. I have no doubt that the your trade decisions are a proprietary complex process derived from years of real trading experience. The "needless complexity" could apply to the trading books that you burned, I suppose?

We all have to start somewhere. No one is born knowing. So part of the excercise is to learn, and the other part is to teach ourselves. The second part is the more difficult. so we all have to read some books, only that I took it to an extreme, and over the years, read evrything I could.

I amassed a huge collection of works and everntualy it became surplus to my needs, because none of them truly helped me to cross the chasm that separates what is mechanical from what is intuitive, which was an odessey I had to travel on my own and that is a long story anyway, and I can tell you none of it is to be found in any book on trading ever written.

As these voluminous tomes were surplus to me; I often invited visitors to help themselves to whatever they fancied from the piles and piles and this served to diminish the collection somewhat, but there were still a huge amount left over that I got fed up with having to cart around every time I moved house.

My original intention was to pass them on to T2W members by deed of gift on a first come first served basis, but as is usual on these boards, there is a hard core of people who take delight in making inappropriate pronouncements they would not dare to make if on a face to face basis. Some became so nasty and ganged up as is the usual habit, that I decided there and then to include them in a huge bonfire at the weekend, and so the whole lot went up in smoke. It took five hours to burn the lot, so you can imagine the amount of material was considerable.

The problem with books is that the slant on the topic varies with the author, therefore to be able to keep a grip on the topic if you are reading and your interest is on a central theme is to be able to keep in focus the central theme itself and to think of it being explained from several angles. If you are able to do that, then the picture you may get is more likely to be either confused or if you are lucky, multidemensional and enriching, but only from an intellectual viewpoint and not necessarily a practical one and certainly not an intuitive one, is my experience.

 

[CYOF]

If you are trading naked puts at an intuitive level. then you have an instinctive sense of whether the Black Whatever is around the corner, or not. Your trading is very interesting and, because of its apparant success, very tempting, but not to be recommended to all and sundry.

Your Irish ally's name, in real life. would not be called Murphy, by any chance, would he?

Split

I am sorry to say, as it will disappoint a lot of my Irish colleagues, but MY OPINION is that:

Murphy's Law Is Flawed

http://www.murphys-laws.com/

If you like I will show you how it is flawed, but only if Socrates agrees to it to be posted on his thread - if not, I will post on another thread, as there is enough side tracking as it is here.

I will not debate it, nor ague it, nor tit for tat it, I will show how a simple extract from a writing, many years ago, shows how everything that happens in the world is not Fixed - and as Murphy said, "if it can happen, it will happen", is not true for all things.

It is MY OPINION - you can of course draw your own, for it is a democratic society we live in.

 

[barjon]

..................Yes.

It is a pity, barjon that you have deleted the overnight skirmishes because they serve to ullustrate the persistent opacity that pervades these boards.................]

socrates

So far as the skirmishes are concerned, I think there's enough left for people to catch the drift

So far as the answer to my question is concerned, I presume that a writer of calls would not have enjoyed your recent success (although that may change for them by the time expiry comes along). Similarly, I presume that you chose to write puts because of your underlying judgement of market direction.

It seems to me that there are two potential edges at work here. The first relates to whatever caused you to determine market direction. The second relates to how you sought to take advantage of that via options - ie: writing puts rather than buying calls.

Would that be fair comment?

jon

 

[CYOF]

Splitlink

There is nothing remarkable about selling a DOTM Put (or call for that matter) and watching it expire worthless. If you choose an option with a delta of 0.10 then the odds are extremely high (9 times out of 10) that it will expire worthless. It's the same a laying a horse at 10/1 not to win. If the odds are priced correctly, then over the long run you will win 9 times and lose once but the loss will equal the gains made on the previous 9 occassions. So it makes no difference whether you buy or sell options, as you will ultimately break-even before costs.

Consider also the extreme events, so extreme that they cannot be modelled.

DB

But results (per se) are uncorrelated. For example, an up day no matter how large, is no more likely to be followed by another up day than it is likely to be followed by a down day.

I agree what you're saying re large moves, in other words a large move is likely to be followed by another large move, but that is a statement about volatility rather than correlation, surely ?

I've never come accross this theorm in option trading.

As I mentioned to Jon,

You will get the usual detractors, and you will get the usual Inspirational stuff.

What these people have no clue about is the WHEN and the WHAT.

They will never know the WHEN and the WHAT, and Socrates has explained many times why they will never know.

So, let them ramble on all they like, for until such time as they know the WHEN and the WHAT, then might as well be trying to push a stone up a hill, and we all know what will happen as soon as they let go for even 1 second, but when you know the When and the What, you will not be pushing a stone up a hill, you will be rolling a boulder, down the hill :idea:

Let them continue to push :cheesy:

 

[Mr. Charts]

As I said in a much earlier post, SOC RATES, you will be consistently successful in this endeavour partly due to your position management. I would not be surprised to see you closing out some of your trades later this week.
I have no interest in all the mud slinging which goes on in this and other threads, but your trades have been excellent.
I'm pleased to see your comments in posts 847 and 852 which might hopefully open up a new level of intelligent debate, though I doubt this is the best forum for that subject.
So well done, SOC RATES.
Richard

 

[CYOF]

So let me get this straight.

1: You say that to have an edge you must be able to make every trade profitable.
2: You say consistent profits cannot be made if the odds are against the trader.
3: You say that option buying has the odds agains it because 85% of the time the option expires worthless.(though why you bring this up is questionable as not a single one of your trades has been held till expiry)
4: You then say the writer has 3 out of 4 chances to get it right.

Now your argument seems to be that the buyer can't possibly have an edge because 85% of options expire worthless. Your definition of an edge being that every trade is profitable.

So how then can a writer of an option have an edge? If we are talking odds, a 3 out of 4 chance to get it right means the writer will get it wrong 1 out of 4 times. Therefore not every single trade is profitable and by your own definition an edge means that every trade is profitable.

So again, by your own definition of an edge, posting X number of profitable trades in a row does not prove the edge is inherent to nor specific to the writing options. The edge that X number of profitable trades in a row would prove is that you have the ability to accurately call the market direction and make profitable trades.

Cheers,
PKFFW

Mother Time >> When>> What

It is really that simple :idea:

Did you not read my post to jon, or do you have me on ignore as well :cheesy:

 

[A Dashing Blade]

DB
But results (per se) are uncorrelated. For example, an up day no matter how large, is no more likely to be followed by another up day than it is likely to be followed by a down day.

I agree what you're saying re large moves, in other words a large move is likely to be followed by another large move, but that is a statement about volatility rather than correlation, surely ?

I've never come accross this theorm in option trading.

Me neither, but, as we're talking about extreme (in standard deviation terms) moves, and given the normal curves assumption about uncorrelation, any large move should occur nowhere near another (if you see what Imean). Mandelbrot makes this point somewhere, I'll try and dig out more tonite.

 

[Glenn]

The facts remain unaltered.
There is no proof in this thread of anything to do with an edge of writing.
There is no proof in this thread that Socrates is calling or placing the trades.
Some of you, especially anyone who is new to options trading, may have become fascinated by a string of trades which have made money - but because there is no proof, you should accept a health warning on the whole purpose of the thread and don't take it as proof of anything.
And anyone who claims that it is proof is either fooling themselves or others, or both.

On a different slant one may wonder why anyone would give away what they believe to be an edge to all and sundry. You might imagine that only a fool would do such a thing.
And in fact in the case of writing Ftse options, it works against anyone who is already writing options.
SInce a year or so ago, hedge funds have come into the options market and caused the premiums to fall considerably. This is just like more insurance companies competing for business and driving premiums down. It is now a rare event to be able to make a decent living from a front month strangle of 500 points or more.
So you have to ask yourself why anyone would be encouraging others to think about writing options because it will only serve to make matters worse for existing option writers because the risk increases for the same reward.
Unless, that is, they are trying to drum up business in some other way. Why else would they bother ?
Well you have to ask don't you ?
Glenn

 

[A Dashing Blade]

socrates
. . .
It seems to me that there are two potential edges at work here. The first relates to whatever caused you to determine market direction. The second relates to how you sought to take advantage of that via options - ie: writing puts rather than buying calls.

Would that be fair comment?

jon

Implicit single word answer required?
Wanna bet you'll get one?

 

[zupcon]

There is no proof in this thread that Socrates is calling or placing the trades.
Some of you, especially anyone who is new to options trading, may have become fascinated by a string of trades which have made money - but because there is no proof, you should accept a health warning on the whole purpose of the thread and don't take it as proof of anything.

Whilst I agree entirely with your points regarding the writer v buyer edge, I think its a little unfair to claim Socrates isn't calling the trades. On a number of occasions he's provided details of planned trades well in advance, and he generally provides an update once filled

Even if they where bulldozers trades, and even if they're not being placed in the market, its Socrates who's placing his personal reputation on the line, and deserves some credit at least for that.

As to the issues regarding vendor-ism, I think CYOF's 8 year old daughter has a little song she sings that sums up the issue very succinctly and that is Buyer Beware Buyer Beware Buyer Beware.

regards
zu

 

[Profitaker]

DB

I understand what you're saying, but even if you measure large moves in terms of StDev rather than in percentage, there is still no measurably correlation i.e, that a large StDev move is more likely to follow another etc. The only exception to the above (that I could find anyway) was the events around Oct 1987, where you had 7 sigma, followed by 4 sigma, followed by 6 sigma. Perhaps this was what Mandelbrot was alluding to ?

Another point to note, is that a large move will increase volatility so another equal move in percentage terms will actually be smaller in StDev terms.

Glenn

Another good summary. I'd also add that the group are embarrassingly transparent.

 

[SOCRATES]

If you are trading naked puts at an intuitive level. then you have an instinctive sense of whether the Black Whatever is around the corner, or not. Your trading is very interesting and, because of its apparant success, very tempting, but not to be recommended to all and sundry.

Your Irish ally's name, in real life. would not be called Murphy, by any chance, would he?

Split

Isn't it s pity that you start off a post and then suddenly veer off into nonsense ?

No, I can confilm his surname is not as you ask.

 

[SOCRATES]

socrates

So far as the skirmishes are concerned, I think there's enough left for people to catch the drift

So far as the answer to my question is concerned, I presume that a writer of calls would not have enjoyed your recent success (although that may change for them by the time expiry comes along). Similarly, I presume that you chose to write puts because of your underlying judgement of market direction.

It seems to me that there are two potential edges at work here. The first relates to whatever caused you to determine market direction. The second relates to how you sought to take advantage of that via options - ie: writing puts rather than buying calls.

Would that be fair comment?

jon

It goes deeper than that. Being able to call the market direction is not enough of itself, it is a help but it is not everything.

It is having a complete understanding on a holistic basis of the scenario as a whole rather than aspects of it that makes the difference.

 

[Glenn]

Whilst I agree entirely with your points regarding the writer v buyer edge, I think its a little unfair to claim Socrates isn't calling the trades. On a number of occasions he's provided details of planned trades well in advance, and he generally provides an update once filled

Even if they where bulldozers trades, and even if they're not being placed in the market, its Socrates who's placing his personal reputation on the line, and deserves some credit at least for that.

As to the issues regarding vendor-ism, I think CYOF's 8 year old daughter has a little song she sings that sums up the issue very succinctly and that is Buyer Beware Buyer Beware Buyer Beware.

regards
zu

" I think its a little unfair to claim Socrates isn't calling the trades"

I think you wrong me sir. I have not made such a claim, but merely pointed out the possibility, and because it is a possibility it should not be discounted.

And that Socrates is placing his reputation (whatever that may be) on the line is his decision,. That he chooses not to defend it with proof means that he is expecting to be believed without it.
Why should he be granted that privilege ?
To you and I he is just another geezer sounding off in front of a screen, or next to us in the bus queue or the pub. Nothing more. Do we give these people the benefit of the doubt where our money is concerned ? I doubt it, at least I hope not for your sake.

Glenn

 

[Splitlink]

Isn't it s pity that you start off a post and then suddenly veer off into nonsense ?

No, I can confilm his surname is not as you ask.

You do know him, then?

Split

 

[SOCRATES]

" I think its a little unfair to claim Socrates isn't calling the trades"

I think you wrong me sir. I have not made such a claim, but merely pointed out the possibility, and because it is a possibility it should not be discounted.

And that Socrates is placing his reputation (whatever that may be) on the line is his decision,. That he chooses not to defend it with proof means that he is expecting to be believed without it.
Why should he be granted that privilege ?
To you and I he is just another geezer sounding off in front of a screen, or next to us in the bus queue or the pub. Nothing more. Do we give these people the benefit of the doubt where our money is concerned ? I doubt it, at least I hope not for your sake.

Glenn

YOUR MONEY ? HOW DO YOU MEAN YOUR MONEY ? WHAT PART DO YOU HAVE IN THIS ?

NONE ! YOU ARE JUST AN OBSERVER, JUST LIKE EVERYBODY ELSE HERE.

YOU HAVE SOME CHEEK....YOU REALLY HAVE !

Or are you now trying to imply I am using yours ? I am not doing anything of the sort.

I don't even know you and I am not interested in knowing you anyway.

I am simply proving systematically that the Writer has the edge over the Buyer.

And what priviledge ?

I am granting the priviledge, not you,

I am posting in real time, you are doing nothing except deriving benefit by observing live calls but seeking any excuse to divert out of envy and sheer malice.

Don't worry unduly, it will soon be over.

As I said last night, I will only post another five to complete the series and prove my point.

From then on, you can make whatever you like of it, and you wlll not find me here to contemplate your nonsense any more.

 

[SOCRATES]

You do know him, then?

Split

You also are very tiresome and a bore, spitlink.

I have explained before, and I will explain again.

I am not him, he is not me, I am not Bulldozer, Bulldozer is not him or me, I am not you, and you are not anybody.

 

[new_trader]

" I think its a little unfair to claim Socrates isn't calling the trades"

And that Socrates is placing his reputation (whatever that may be) on the line is his decision,. That he chooses not to defend it with proof means that he is expecting to be believed without it.
Why should he be granted that privilege ?
To you and I he is just another geezer sounding off in front of a screen, or next to us in the bus queue or the pub. Nothing more. Do we give these people the benefit of the doubt where our money is concerned ? I doubt it, at least I hope not for your sake.

Glenn

1) I have no reason to think Socrates is a liar
2) I have every reason to believe Socrates knows a great deal about options trading
3) I have every reason to believe Socrates is an Elite Trader with an edge.

I have come to the above conclusions based on what I have witnessed in this and other threads.

If Socrates professes that writers have the edge then I believe him, unquestionably, and I don't need to know anything about Options trading nor does he require providing me with "proof". I take what he says on face value and with faith. In the same way that I (and I suspect many people here) don't need to see a pilots credentials, or the Boeing aircraft blueprints and aerodynamic calculations before boarding a flight.