Desperately Searching for a Mentor

counter_violent

Legendary member
9,543 2,418
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 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

Junior member
13 4
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.
 
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Shawty_

Junior member
19 1
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.
 

carryontrading

Junior member
45 7
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.
 

Shawty_

Junior member
19 1
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.
 

alan5616

Established member
662 42
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.
Trading options is a complex business. Those, whom I know, that make money from it, are option sellers. In many cases, they own the stock and sell call options to increase their annual return by collecting the option premiums.

However, my particular forte is in trading forex. It can be very profitable provided that you establish a sensible risk/reward ratio and have clear entry/exit strategies.
 

carryontrading

Junior member
45 7
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.
Option Volatility and Pricing by Sheldon Natenberg was quite helpful but in my opinion you’ll get more out of getting hold of some options pricing sheets with greeks on so you can make your own charts. Once you are familiar with the effect of time vol and underlying movement on the price of the options, repeat the process for spreads. Its an absolute headache but it will help you recognise why some spreads move at different rates to others or even why sometimes you’d buy calls, the underlying market would rise and yet your p&l would laugh at you.