The short story: grief stricken. Depressed. Invested into options trading and made a windfall, then, literally, lost it all, practically in one trade. I didn't know this at the time, but I got VERY lucky. Now I know. What did I do wrong? Practically everything. Huge position size. No risk management. Going in again out of agony and sadness, only to lose even more. I swear: I'm ready. I'll start with 1 lot. I opened a paper trading account. I need help and I've put myself out here for all to see, because I know there has to be someone here who understands me. I know I've done wrong and I want to change irrespective of how long it takes or how complex it is. I'm absolutely TERRIFIED. If you understand and are willing to coach me, please PM me. Thank you.
Hello,
Both. I was trading spreads. If I had bet less I would've been better off. Lesson learned.
Stan1T
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Shawty, I can sympathize with you. Trading is one of the most emotionally challenging things I've ever done. Makes high school love look like child's play.
In '08 in the crash I lost 6 figures in one 8 hour session. Talk about pain.
But I didn't quit. I realized my mistakes and then keep plugging away.
My biggest lesson was that mastering your emotions around trading is the key. If you still use all caps TERRIFIED, man, I would strongly encourage you to focus on your emotional control when it comes to trading. Get yourself in a position where you simply don't care if you win or loose. If you are trading next month's rent, you are asking to get your feelings hurt.
This forum can be a great help. Just keep asking questions here and we will all try to help you.
Stan,
I appreciate your words. It was factually heartbreaking because I was asking for trouble and I got it. I simply couldn't absorb the level of risk in front of me. Like many rookie traders, I saw my life in this. I still do to some degree but I am extremely jaded. Do small time traders succeed in the long run? Seeing the institutions move markets I begin to wonder why I ever started (I was delusional). I'm not about to quit but I've started asking whether I should continue and whether I truly believe I'll ever be profitable.
ARBinstruktor
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Yes, it is a long and hard way to final success. And actually you will never know for sure, whether you are finally realy successful or you are just simply on an extraordinary long winning streak.
My biggest single loss ever was to buy cleverly some kind of leap straddle. I had 2 years time just to observe how premia eroded on both sides.
The description of your way to ruin gives the impression, that you are quite familiar with the topic. Spreading is some kind of controlled risk strategy. So you seem to have been aware of the risk side. But nevertheless something must have gone wrong.
Please give more details. In order to lose signifcantly on spread strategies, you either have understood some essential parts completely wrong, or you have repeated your mistakes for a long time.
Anyway if you cannot price an option at least on basis of the binomial tree model, you should not trade it either. The Greeks are nice for small talk at diner parties, but for trading you MUST know explicity what prices an option can take and whether it is good for your position or not.
Running binomial trees in most cases you won't take any position, most of the remaing will be short ones. In that cases you can start to look for hedges. And if you have found an appropriate hedge, then you MAY take the position.
I personally use mostly options in my ARBITRAGES, usually I establish a statiscal arbitrage, ie my position has a high probability (>>99%) to win, but there are still the transaction costs to consider. If the implied volatilities - ie the premia - are high enough, I sell my statARB via Options back into the market. EURUSD has currently so low vola, that I simply hold my statARB. Brexit discussions in GBPUSD have lifted this vola that high, that I have sold my statARB thru Options. In case realized vola is above the implied vola, I will have restrained my ARBprofit to the size of the option premia minus costs, BUT if realized vola is below the implied vola I still make a profit of option premia minus costs.
Another advise: if you really have lost almost everything in this experience, then it might be better to accept it and to go away. Because especially with Options you should have a sound financial background. The leverage is so promising, but is so seldomly held. Money lies on the short side, but the short side has to be hedged, otherwise you are picking pennies in front of a steam roller.
My biggest single loss ever was to buy cleverly some kind of leap straddle. I had 2 years time just to observe how premia eroded on both sides.
The description of your way to ruin gives the impression, that you are quite familiar with the topic. Spreading is some kind of controlled risk strategy. So you seem to have been aware of the risk side. But nevertheless something must have gone wrong.
Please give more details. In order to lose signifcantly on spread strategies, you either have understood some essential parts completely wrong, or you have repeated your mistakes for a long time.
Anyway if you cannot price an option at least on basis of the binomial tree model, you should not trade it either. The Greeks are nice for small talk at diner parties, but for trading you MUST know explicity what prices an option can take and whether it is good for your position or not.
Running binomial trees in most cases you won't take any position, most of the remaing will be short ones. In that cases you can start to look for hedges. And if you have found an appropriate hedge, then you MAY take the position.
I personally use mostly options in my ARBITRAGES, usually I establish a statiscal arbitrage, ie my position has a high probability (>>99%) to win, but there are still the transaction costs to consider. If the implied volatilities - ie the premia - are high enough, I sell my statARB via Options back into the market. EURUSD has currently so low vola, that I simply hold my statARB. Brexit discussions in GBPUSD have lifted this vola that high, that I have sold my statARB thru Options. In case realized vola is above the implied vola, I will have restrained my ARBprofit to the size of the option premia minus costs, BUT if realized vola is below the implied vola I still make a profit of option premia minus costs.
Another advise: if you really have lost almost everything in this experience, then it might be better to accept it and to go away. Because especially with Options you should have a sound financial background. The leverage is so promising, but is so seldomly held. Money lies on the short side, but the short side has to be hedged, otherwise you are picking pennies in front of a steam roller.
C
cantagril
Can you either personally go into statARB or recommend a good educational source?
Also in regard to your advice - I appreciate your advice in the same way I appreciate all other posters. There's plenty of time for me to go away. I'll consider it at some point.
Stan1T
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Well, I think it is like anything in life. Most quit and fail and few succeed. True with anything. I don't think what anyone else does matters. If you want it, you can do it. Why not? I believe anyone can do anything. There are enough examples of that across all industries.
Just be clear on what you want and what you are willing to pay for it.
Trading can be more rewarding than anything imaginable. That's why there is so much money in it. Also means, it is that much more challenging.
I know plenty of traders making a living at it.
One of the best ways to learn quick is through viewing others and seeing as much as you can as quickly as you can. I have been deep in summits lately. I can see 20-30 traders in 5 days do their thing. Online trading summits are usually free too.
Anyway chin up. The world is your oyster.
ARBinstruktor
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Just check my (few) contributions on T2W.
Basis is always a sound scenario of possible outcomes, no matter what instrument involved (stock, option, futures, etc).
PLaying the market on the long or short side with LINEAR instruments (stock, futures, rolling spot, etc) asks for better forecast power than the market has. If you have none, like me, leaf it.
Using instruments that incorporate premia (options, but a lot of other products you might not be aware of as eg the USD Index, or the USD Nikkei futures) usually offer opportunities on the short side. BUT here your hedge is essential.
THe only linear game in town I know, is swap free arb. Long USDCHF with "normal" broker and short USDCHF with a swap free broker.
Everthing else needs real knowledge about option pricing. You still have not declared your know how background.
Do not get me wrong,
I did not say you should go away. I just said, if you hope to recover your losses by merely disciplined trading,
your chances are very meagre, if you are not prepared/able to bring new funds to the table.
Especially if you have "some idea" about what you have done wrong. In such a case you should define your "new strategy" as soon as possible, and you should test it. Test it, but not with the usual angst in the real market, but fiercefully and intensive with real historic data.
No idea, whether you have an option database. Buying the data is not cheap. But it allows you to find out soon, wether your hopes have ground.
I can't recall who brought up the topic of spreads and that I must have some knowledge of risk, not sure if someone deleted a response.
I'll say that yes, I had experience with both naked options and spreads and learned the risk of naked trading early on and was smart enough to implement spread strategies in my future trading. What really ruined my game were the position sizes and the emotional roller coaster that ensued when I lost almost everything on a directional trade that went completely against me. In case anyone viewing this thread is thinking to themselves that implementing a directional spread is low risk, please think again. At that point I needed more education on how options work, what the Greeks mean and how they impact the trade in different volatility, how to build neutral trades, and most importantly, how to adjust trades.
I'll be going back in once I do as much practice as possible on the simulation. Classic overtaking was always my issue. I did okay - just okay. That's the truth and I'm totally fine with it. I could have remained profitable and afloat if I wasn't so heavily sized. I repeat that I wasn't ready for the risk. Exactly how do you adjust when you're at almost 100% capacity? I didn't understand risk at that time. I know I wanted to minimize it but I was so excited to trade that I didn't spend enough time studying how to minimize it to a comfortable level.
I've watched so many videos and read the stories. My situation is so classic it's almost funny. But it does not make it any less painful.
ARB - honestly, I am not at all slighted by your suggestion. I completely agree with it. If I can't manage my risk or refuse to learn the right away then yes, I should go away. But I said in my opening post that I am not prepared to walk away from my mistake. I will learn the right away, but it will take a lot of time before I can get back in. That's the price I paid. I'll learn as hard as I can while I wait. By the time the door opens again I will be prepared.
I'll say that yes, I had experience with both naked options and spreads and learned the risk of naked trading early on and was smart enough to implement spread strategies in my future trading. What really ruined my game were the position sizes and the emotional roller coaster that ensued when I lost almost everything on a directional trade that went completely against me. In case anyone viewing this thread is thinking to themselves that implementing a directional spread is low risk, please think again. At that point I needed more education on how options work, what the Greeks mean and how they impact the trade in different volatility, how to build neutral trades, and most importantly, how to adjust trades.
I'll be going back in once I do as much practice as possible on the simulation. Classic overtaking was always my issue. I did okay - just okay. That's the truth and I'm totally fine with it. I could have remained profitable and afloat if I wasn't so heavily sized. I repeat that I wasn't ready for the risk. Exactly how do you adjust when you're at almost 100% capacity? I didn't understand risk at that time. I know I wanted to minimize it but I was so excited to trade that I didn't spend enough time studying how to minimize it to a comfortable level.
I've watched so many videos and read the stories. My situation is so classic it's almost funny. But it does not make it any less painful.
ARB - honestly, I am not at all slighted by your suggestion. I completely agree with it. If I can't manage my risk or refuse to learn the right away then yes, I should go away. But I said in my opening post that I am not prepared to walk away from my mistake. I will learn the right away, but it will take a lot of time before I can get back in. That's the price I paid. I'll learn as hard as I can while I wait. By the time the door opens again I will be prepared.
NVP
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hey there ....jees 6 figures in 1 session .......thats some serious action !
i took a serious beating back in mid 70's when i was still a spotty teenager in the gambling market ...i was a pretty high roller by then having made a lot of money on horseracing and also working for my bookmaker family business ......
but as you say my ego got a real lecture on how the real world worked ...and i never forgot it .......
so onwards and upwards guys ! .....im not an option specialist but i hope someone steps in who is ....
a few pointers though on generic side of this :-
1) Become an expert in your trading field ....knowledge is power .....dumb money will dissapear quickly
2) understand the true risks / rewards and scale accordingly - a scared trader is a losing trader
3) Play the long game - we are here to make money over time - not just tomorrow
4) Become the eternal student - learn something new every day
5) Stay humble - no place for Ego in the TRUE trading business (leave it to the vendors and sales scammers)
6) Try to help others......and give back what others gave you
N
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NVP
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dont beat yourself up too much ............weve all been there ........its like you cant belive you did it ...right ? .....like you are rewinding a movie and shouting at yuorself in the scene saying "what re you doing dummy ??)...........
been there - bought the T-shirt ......
my advice is to practice more meditation anf mindfullness generally
then especially try to practice thrid party perspective on yourself if possible at all times ...or especially at stressful moments
so step outside yourself and try to review what you would be saying as a third party coach or mentor or friend ....like you are coaching a friend .....now would you have let your friend do what you did at the time ? - hopefully not !!!
N
counter_violent
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I don't know if you play poker, but when you are ALL IN, then you are at the mercy of the other players hands, or the remaining card turns in the deck. All means of controlling the outcome have gone. That is where you ended up with the trading.
If your trading strategy relies on managing the variables, then it follows that you need plenty in reserve to deal with the Ifs. If this happens then this action follows etc. So position sizing is clearly the issue here, if you need reserves in order to manage the outcome.
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nnash
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In the words of Marcos Lopez de Prado most financial discoveries are false.
Most strategies don't work but most retail traders because of all kinds of psychological bias believe their system must work.
Even the Buddha is going to lose money if he was trading a losing strategy.
You need to start with the assumption your idea is not better than any other random trading idea that doesn't work and then prove sufficiently to yourself that it works enough to bet your capital on. Not just assume because you came up with the idea it works and then prove to yourself it doesn't work by losing capital.
Most strategies don't work but most retail traders because of all kinds of psychological bias believe their system must work.
Even the Buddha is going to lose money if he was trading a losing strategy.
You need to start with the assumption your idea is not better than any other random trading idea that doesn't work and then prove sufficiently to yourself that it works enough to bet your capital on. Not just assume because you came up with the idea it works and then prove to yourself it doesn't work by losing capital.
How far out do you all normally trade (do you buy/sell 3 days to expiration, 5 days, 14 days out)? In the past one thing that lost money is trading too close to expiration. But when you trade too far out (14 days, 30 days) although you have a better opportunity to take profits, the profits are much lower. Additionally, your position have risk of going ITM and being assigned. I was once assigned on a short position when the stock was -10 from it's high (the short position was around the high). About a week after I assigned the stock returned back to its all the time. If I wasn't assigned I would've kept everything.
My start in trading was with a market maker in options so will try and upset you a little. We had a massive IT department who put together an interface with an ability to easily calculate theoretical prices as well as spoil us with information on risk. It was dead easy to estimate what the P&L would look like given changes in the underlying and/or volatility. I wouldn’t exaggerate in saying it was all instant. I guess you dont have access to anything like that which in my opinion means your understanding of options fundamentals has to be that much greater. You need to know the greeks really well and how they change when volatility changes or observe a different expiry. And now the truth ..... knowing everything there is to know about options, holds no guarantee that you’ll make money because you’ll need an edge. When it comes to strategies, unless you have a proven edge, given the bid ask spreads and fees, you are playing a minus sum game. Is it impossible to make money? Not at all but you need to make studying and testing your no1 & no2 hobbies at least for a while.
You are asking what other ppl buy and sell, Id suggest you don’t get into randomly copying others as you’re likely to go further down the road you don’t want to be on.
You are asking what other ppl buy and sell, Id suggest you don’t get into randomly copying others as you’re likely to go further down the road you don’t want to be on.
Hi Carryon,
Thanks for your reply. I totally understand your response. Since the start of this thread I've made so much headway in studying and practicing that I can feel the truth in your reply directly in my bones. I go through periods of hopelessness, but all in all, I haven't proven to myself that I've tried everything, and so, I'll keep trying. I'll continue studying and practicing. I think it's important to understand the Greeks from the perspective of risk management because if the trader is able to hedge their position it won't matter if they make profit. The other thing I'm focusing on is entry. Good entry combined with adequate risk management may not get me a profit but should (theoretically) reduce or eliminate the loss. I'm okay with starting there. Can you recommend a good software and/or book to further the learning and practice?
Thanks again for your input.
Thanks for your reply. I totally understand your response. Since the start of this thread I've made so much headway in studying and practicing that I can feel the truth in your reply directly in my bones. I go through periods of hopelessness, but all in all, I haven't proven to myself that I've tried everything, and so, I'll keep trying. I'll continue studying and practicing. I think it's important to understand the Greeks from the perspective of risk management because if the trader is able to hedge their position it won't matter if they make profit. The other thing I'm focusing on is entry. Good entry combined with adequate risk management may not get me a profit but should (theoretically) reduce or eliminate the loss. I'm okay with starting there. Can you recommend a good software and/or book to further the learning and practice?
Thanks again for your input.
