Oh what the hell, I'll post it here anyway.
Comments anyone?
On Jan 27, 12:04 pm,
[email protected] wrote:
> Well the first week is over and all became clear a few days into it.
> At first I thought you were another fixed odds betting company or
> bookmaker. This despite your name (and mine come to that), I just
> thought yours was a catchy title.
>
> So congratulations on simplifying? exotic option trading.
>
> Options trading even in a simplified form is hard to judge even for a
> competent trader from say stocks or indices. Mainly because they fail
> to understand the mechanics of it. More importantly they fail to
> understand the dreaded 'Time Decay' factor.
>
> Which brings me to my first point, in being options are one of the
> only trading vechicles in which you can win a trade, bet etc (call it
> what you wish) and you end up losing money on that trade. (Reference
> my first post). You can even win the trade and then be in a negative
> amount from your starting money. So in effect you actually lose money.
> I purposely traded 2 times this way to see if I could provide an
> illustration. (Last 2 trades of pasted account history) Bit hard to
> follow since it doesn't paste properly.
>
> I haven't traded all your instruments but is the time decay present in
> all of them? I would tend to think they are.
>
> To all the traders that read this and do not understand the time decay
> of which I refer to.
> If you choose for instance a lookback bet at a very slow market
> movement time, lunch time, late evening etc. Your price for whatever
> you are trading will hover up and down by a couple of ticks/pips etc,
> essentially going nowhere. Now the time decay factored into the trade
> is working away all the time so your profit is being eroded with each
> minute the bet is in force. You can get this to work in your favour
> but you must choose the correct trade to begin with.
>
> The 2nd major thing that will confuse people is the stake.And this is
> the 2nd area where the site will fall down. If I put 500 pound on a
> horse at a bookmakers and the horse comes in last I wave goodbye to
> the 500 pounds. If it wins I collect my winnings. The price the bet
> was for the horse plus my 500 stake money back
>
> Fixed odds bookmakers You do not wave your stake money goodbye if you
> win.
> Spreadbetting company. You do not wave your stake goodbye. Lets take
> the first example trade underneath here. 20 dollars a point for every
> point that market fell from 1.9711 to 1.9626 = 85 points. To place the
> bet cost me 1,267.19 The bet made 85x20 = 1,700. Take the stake from
> this and that leaves my profit at 432.81
>
> The same trade with a spreadbetting company would have meant having a
> ntr (nominial trade requirement) of x amount. They all vary slightly.
> Lets say there was 20,000 at balance. 85x20 =
> 1,700. This would have been the profit credited to my account. No loss
> of stake!
>
> Given these two major factors why should people use your site to trade
> with. (This is not to "knock" you). But other people will point this
> out and this is simply the feedback you asked for, and a chance to
> state why people should use you. I know I have used options in the
> past to hedge a position in stocks or on the majors and this could be
> a convenient way to do this.
>
> You are to be applauded for lowering the barriers to options trading
> and this can only be a good thing.But for your site to be one of the
> best you have to have better options (No pun intended) then the others
> offer and barring what I have just said your site falls down on 2
> further major points that will see a lack of signups and client
> retention until these are redressed.
>
> Apologies for the lengthy post but the weekend are the only real
> chance to go into any depth. After all I do have a living to make
> during the week. Oh! and to anyone who is interested there will
> shortly be a major market move upon us. Ride this trend and it will be
> a good year. Keep your eyes open!
>
> Look at the figures at the end of the trading history.
>
> 25/01/07 12:01 Lookback paying $20.0 FOR EVERY POINT that GBP/USD
> ever falls below 1.9711 with expiry of 15 hours. 1,267.19
> 1,700.00 432.81 1.9714 EXPIRED 1185541
> 1.9626
> 26/01/07 6:12
>
> 26/01/07 14:52 Lookback paying $10.0 FOR EVERY POINT that GBP/USD
> ever falls below 1.9585 with expiry of 15 minutes. 73.05 240.00
> 166.95 1.9582 EXPIRED 1186120
> 1.9561
> 26/01/07 15:08
>
> 26/01/07 10:40 Lookback paying $9.0 FOR EVERY POINT that GBP/USD ever
> falls below 1.9615 with expiry of 15 minutes. 29.35 126.00 96.65
> 1.9621 EXPIRED 1185905
> 1.9601
> 26/01/07 10:56
>
> 26/01/07 15:25 Lookback paying $10.0 FOR EVERY POINT that GBP/USD
> ever rises above 1.9589 with expiry of 15 minutes. 34.72 100.00
> 65.28 1.9588 EXPIRED 1186124
> 1.9599
> 26/01/07 15:41
>
> 26/01/07 15:59 Lookback paying $10.0 FOR EVERY POINT that GBP/USD
> ever rises above 1.9593 with expiry of 15 minutes. 64.59 110.00
> 45.41 1.9595 EXPIRED 1186127
> 1.9604
> 26/01/07 16:15
>
> 26/01/07 11:07 Lookback paying $1.0 FOR EVERY POINT that GBP/USD ever
> falls below 1.9603 with expiry of 15 minutes. 3.89 6.00 2.11
> 1.9608 EXPIRED 1185960
> 1.9597
> 26/01/07 11:23
>
> 26/01/07 15:14 Lookback paying $10.0 FOR EVERY POINT that GBP/USD
> ever falls below 1.9574 with expiry of 15 minutes. 103.62 100.00
> -3.62 1.9568 EXPIRED 1186122
> 1.9564
> 26/01/07 15:30
>
> 26/01/07 15:42 Lookback paying $10.0 FOR EVERY POINT that GBP/USD
> ever rises above 1.9589 with expiry of 15 minutes. 105.39 70.00
> -35.39 1.9595 EXPIRED 1186126
> 1.9596
> 26/01/07 15:58
>
> $ 1,681.80 2,452.00 770.20
>
> So my actual account has grown by only 770.20 when the actual profit
> should have been 2,452.00
>
> I last thing. The leader board in percentages means people can
> increase their balance by a nominal amount and be top while someone
> else can rack up huge profits and be placed further down the field.
>
> Kind regards.
>
> John D.
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John,
Your in-depth analysis is very welcome and appreciated. Thank you.
I do not think that one can really compare Lookbacks with spread
betting any more than one would compare the latter with vanilla
options.
Your example is correct only under this very broad assumption: a
spread-bettor always exits at the top or the bottom (depending on
whether they are short or long). I hope from your experience you will
agree that this is a very difficult thing to accomplish and if
everyone could do it we would all be very rich.
The Lookback *guarantees* you the top or bottom. For that you pay the
stake. In essence it is a bet on volatility. Some of our users have
partially hedged their lookbacks with no touch bets paying out an
amount equivalent to the stake if the lookback does not at pay out a
certain minimum. It costs a bit but reduces the risk considerably. The
viability of this depends on the implied vol and other parameters at
the time - sometimes it is worthwhile, sometimes not.
-----------------------
On your last note, about the leader-board: everyone starts with 10,000
virtual dollars. In your case, your profit of 958 means you are at
+9.58%. In other words, the percentage is based on the initial funding
of 10,000. This normalizes everyone's gains/losses and guarantees a
correct comparison of performance. We have observed a positive
correlation between the use of long volatility bets (one touches,
lookbacks, time switches etc and % gains in the FX bets).
-----------------------
In relation to your question about time value:
Time decay can work for or against you, depending on which bet type
you make and where the strike is in relation to spot. Where time value
works for you, market volatility is against you and vice versa.
If you buy a Binary range (IN), Binary (in the money), TimeSwitch (in
the money), a TimeSwitch range (IN), a No Touch or a No Touch range
you earn positive time value as you profit from low market volatility.
If you buy a Lookback, One Touch, One Touch range, Binary (out of the
money), Binary Range (OUT), TimeSwitch (out of the money), TimeSwitch
range (OUT) or a Trend Multiplier you you earn negative time value as
you profit from high market volatility.
-----------------------
Some bets pay the stake back to the winner, others do not. A Lookback
is just an infinite series of One Touches paying out $x every time the
market touches a new point (up or down depending on the bet bought).
-----------------------
I hope that this is helpful. If you think of ways we can improve the
site please do tell us - we wish to make it optimal for your use.
Best Regards,
John Ansbacher
