Introduction - seasoned trader
Hi:
Since retiring, I have devoted a lot of my time to becoming well acquainted with options, and option strategies and adjustments specifically. I've also had the time to conduct in-depth research to debunk a lot of the opinions that long-time floor traders (now retail traders) still carry with them, like so much excess baggage.
I have a fairly conservative trading style, which means I prefer to consistently get on base as opposed to hitting home runs. And this is why I find options so attractive - they enable me to select strategies with high probability outcomes (i.e., you risk a lot to make a little) The reality is, however, that on the rare occasion that you lose, you typically lose a small amount (while potentially you could lose a large amount).
While I have learned a lot, there are three important lessons that stand out. First, the markets are driven by newsworthy events. Therefore, understanding both the magnitude and the duration of these scheduled (and unscheduled) events on the markets is important to your trading success.
Second, as a result of the above, the price action of the markets is predominantly random (that is, they exhibit Brownian motion). Once you can accept this fact (for many this is not easy), then you are ready to apply the Probability Model, in conjunction with options, to increase your probability of profit (POP) from 50% to well over 90%.
And third, option modeling (ex., Black-Scholes model) enables us to measure directly market expectations through implied volatility (IV). While modeling is not perfect, it is far better than inferring expectations of market participants through historical volatility (HV). While IV is forward looking (as opposed to HV which is backward looking), it is not predictive (as many would mistakenly assume); it does however, provide the last important component needed in the proper employment of the Probability Model.