Looking at Options.

[kimo'sabby]

I've been havin a little butchers at the old options market just recently...very tempting...especially writing the f*ckers in some way shape or form.

One question.

I take a deep OTM trade, i recieve pittance, they take a hefty sum.

Wot are they doin with my money?

With the length of expirey, there is no way on this earth that my strike will be touched, not a chance.

Long story short. Is this a licence to use my money for their means?

 

[Martinghoul]

Huh? If you sell a DOTM option and receive a pittance, how do they (whoever "they" might be) take a hefty sum? I am not sure what hefty sum you might be referring to.

The long story short is sorta right. Selling options can be a way of borrowing money from the mkt, but it does come with all sorts of risks attached. People who "misunderstimate" these risks blow themselves up. People who use these methods wisely make a killing.

 

[kimo'sabby]

Huh? If you sell a DOTM option and receive a pittance, how do they (whoever "they" might be) take a hefty sum? I am not sure what hefty sum you might be referring to.

The long story short is sorta right. Selling options can be a way of borrowing money from the mkt, but it does come with all sorts of risks attached. People who "misunderstimate" these risks blow themselves up. People who use these methods wisely make a killing.

It's odds on mate.

 

[DashRiprock]

i would really like to trade options one day but there are so many damn things to cover and I don;t know how to take a view on them that its a long way off i think.

i would like to do gamma scalping as a strategy but i reckon you need to put a bit of wedge behind it.
maybe not if you do it in stocks i suppose

:/

 

[kimo'sabby]

i would really like to trade options one day but there are so many damn things to cover and I don;t know how to take a view on them that its a long way off i think.

i would like to do gamma scalping as a strategy but i reckon you need to put a bit of wedge behind it.
maybe not if you do it in stocks i suppose

:/

I'm kinda looking right now. The writing side seems like money for old rope(too good to be true), the buying side seems like wishful thinking(may as well stick to futures).

Futures are, or can be a 'heady' instrument. A lot of labour/maintenance, that sometimes i can really do without.

This is where, for me, options come into play.

 

[DashRiprock]

well, for me, its the total opposite i think.

I dont really see any difference between writing or buying options just like i dont see any difference going long or short on futures. i reckon at whatever time you trade in the option, the price will be fair - so either buy buying or writing, you have to speculate on something.

i think the strategy i am most interested is trading volatility, either like gamma scalping or the skew, somethin like that.

trouble is i don't reckon my volume histogram and ema are much use there LOL

 

[kimo'sabby]

well, for me, its the total opposite i think.

I dont really see any difference between writing or buying options just like i dont see any difference going long or short on futures. i reckon at whatever time you trade in the option, the price will be fair - so either buy buying or writing, you have to speculate on something.

i think the strategy i am most interested is trading volatility, either like gamma scalping or the skew, somethin like that.

trouble is i don't reckon my volume histogram and ema are much use there LOL

Seriously mate, nobody on t2w talks like you. Wot are u talkin about? (i'm not being awkward, i'm making a point)

I'll tell ya wot i'm on about.

Any *****n idiot can take a direction.

Wot you say makes sense.

 

[DashRiprock]

:clap:

What I'm saying is that inherently I can't see why anyone would prefer writing options than buying options. The decision to write or buy would depend on your view of what the underlying price factors were doing, and the relationships between them (say, for example, the relationship between delta and vega).

I wouldn't want to take a view on any one specifically without being able to discount all the other price factors; and, presently, that is not something I am in a position to do.

 

[Martinghoul]

It's odds on mate.

I dunno what you mean...

Options are a funny type of instrument. The extra dimensions just give you more degrees of freedom to play with, as well as a richer variety of risk premia to buy/sell. Sometimes that means things get too cheap or too expensive and you can take advantage of that.

 

[kimo'sabby]

:clap:

What I'm saying is that inherently I can't see why anyone would prefer writing options than buying options. The decision to write or buy would depend on your view of what the underlying price factors were doing, and the relationships between them (say, for example, the relationship between delta and vega).

I wouldn't want to take a view on any one specifically without being able to discount all the other price factors; and, presently, that is not something I am in a position to do.

Oooh, you! Don't sit on the fence.

 

[Martinghoul]

:clap:
What I'm saying is that inherently I can't see why anyone would prefer writing options than buying options. The decision to write or buy would depend on your view of what the underlying price factors were doing, and the relationships between them (say, for example, the relationship between delta and vega).

I wouldn't want to take a view on any one specifically without being able to discount all the other price factors; and, presently, that is not something I am in a position to do.

I think there was an old thread here where I mentioned my view on this, which is that it's all about the mark-to-mkt.

 

[kimo'sabby]

I think there was an old thread here where I mentioned my view on this, which is that it's all about the mark-to-mkt.

Ok, but once a person gets so confident about the underlying....why choose options? Why not futures?

 

[Scotty2Cues]

:clap:

What I'm saying is that inherently I can't see why anyone would prefer writing options than buying options.

I thought that but have since bought the (beautiful) books by Mark Joshi and Paul Wilmott.

The writers can hedge their risk by buying/selling the underlying stock. It makes no difference what the market does in the future.

Pricing options is very beautiful and cant put the books down....

 

[Scotty2Cues]

It assumes the market is efficent due to investors who do not believe in market efficiency! and the writers have a riskless portfolio. Also depends on arbitrage free markets i think

 

[Martinghoul]

Ok, but once a person gets so confident about the underlying....why choose options? Why not futures?

So many possible reasons... Some of the more misguided people do it to earn a little bit more money. They call it "yield enhancement".

 

[Martinghoul]

The writers can hedge their risk by buying/selling the underlying stock. It makes no difference what the market does in the future.

Unfortunately, this is incorrect and is precisely where all the models break down.

 

[Scotty2Cues]

Unfortunately, this is incorrect and is precisely where all the models break down.

Isnt that only extreme cases though?

 

[kimo'sabby]

So many possible reasons... Some of the more misguided people do it to earn a little bit more money. They call it "yield enhancement".

Wot possible reasons?

 

[Martinghoul]

Isnt that only extreme cases though?

Nah, it's a fundamental flaw in the theory... The underlying can always gap and mkts can always go bidless and/or offerless. There isn't a theory out there (that I know of) that is capable of pricing the liquidity element. That's the secret sauce that makes all the difference.

Wot possible reasons?

I mentioned one in my post, didn't I?

 

[Scotty2Cues]

Nah, it's a fundamental flaw in the theory... The underlying can always gap and mkts can always go bidless and/or offerless. There isn't a theory out there (that I know of) that is capable of pricing the liquidity element. That's the secret sauce that makes all the difference.

But I thought if you are a writer, the stock value at expiry covers the option payoff at expiry.

Im only a couple of chapters in....