Plain Vanilla Options Trades.

[Mr Soros]

Jacinto,

“not knowing what a probability distribution is for a particular outcome”. The problem is not knowing, or taking into account, unknown or unforeseen outcomes, as in GARCH and LTCM.

Socrates,

The Fed bailing out LTCM illustrates your point re protective curbs. However, this does not trickle down to the individual level. The Fed’s actions were to preserve the overall system but individuals got badly burnt.

Grant.

It is about preparing for the unexpected and knowing what may arise and how to deal with it when it does.

 

[SOCRATES]

Socrates this was the point that i was trying to make in my very first post on this thread. I believe that all successful traders share many common traits, which each can recgnise by the language they use. I would have thought that these common traits would at least produce a harmony of minds in thinking. This harmony could have taken this thread down a different road completely. Not just this thread, many others too. In my opinion a collective could have paved the way to a more constructive thread.

Actually I will tell you at the top of the membership of this site and others there is never disharmony, only agreement. This is because if you put several expert traders into a room and give them a scenario, they will all arrive at the correct conclusion. The fact they may use slightly different routes does not matter. What matters is harmonic confluence of ideas. But what distinguishes this group from the rest of the membership is agreement and harmony, recognition and mutual respect.

There is no brain picking, no envy, no vitriol, no bickering, no attempts at intellectual theft, no agression, no nonsense, only mutual admiration and recognition,

Of course, this is a world that few are priviledged to inhabit,

It rests on the criteria of Merit Ability and Conduct,

You will see how on these boards habitually one if not all of these criteria are missing.

It therefore causes us to clam up and be very guarded with our hard earned expertise and edges acquired over a long period of time and often at great personal cost and other sacrifices.

Therefore one is obligated to show results and not necessarily the route taken to achieve them. This causes a lot of agression and rudeness. It causes us to be able to pinpoint exactly who's who in the zoo, so to speak

The fact that this thread cannot be amplified is due exclusively to the responses of individuals whose behaviour is inappropriate. Then the general readership suffers.
In the next series of trading demonstrations live I shall be moving my topics to another forum, where I am guaranteed not to have to put up with nonsenses. But I shall finish what I started.

I shall prove the writer has the edge over the buyer, and I will close all my trades at a profit.

 

[SOCRATES]

I used to be a policymaker. The runs on either a currency, a bank, etc. etc. really arent a surprise.

Instead think of how to boil a frog to death:
a) put the frog in boiling water
b) put the frog in water at room temperature and increase temperature slowly.

j

.

 

[SOCRATES]

Jacinto,

“not knowing what a probability distribution is for a particular outcome”. The problem is not knowing, or taking into account, unknown or unforeseen outcomes, as in GARCH and LTCM.

Socrates,

The Fed bailing out LTCM illustrates your point re protective curbs. However, this does not trickle down to the individual level. The Fed’s actions were to preserve the overall system but individuals got badly burnt.

Grant.

Yes, you are correct and I agree with you.

By the time it trickles down to the individual level at mainstream it catches individuals by surprise.

The mission is not to get caught.

For this reason also The Star Chamber and the Elite 34S club are not dependent on the internet, and thus whiteouts, leaks and hacks are circumvented...

 

[Splitlink]

Yes, you are correct and I agree with you.



The mission is not to get caught.

You must not be swimming where the fishermen cast their nets.

You must be a loner.

Split

 

[grantx]

Jacinto,

Currency runs, etc aren’t a surprise – they have a record. Flying two jets into the WTC was an unknown event; James Baker’s criticism of the Bundesbank’s failure to maintain Dollar, Deutschemark interest rate co-ordination precipitating the ’87 crash was an unknown and unforeseen event. Indeed, one can speculate or construct any number of extreme, but theoretically possible, situations (background of LTCM’s downfall). However, given they’ve never happened (as my first two examples) they (will) get an appropriate risk-weighting, ie almost zero.

To include Mr Soros’s remark, “preparing for the unexpected and knowing what may arise and how to deal with it when it does”: A reasonable measure would be, what’s the biggest daily move (20% down in ’87), now double it. From my point of view, that is a potential risk. After all, records are made to be broken. However, this could also be counter-productive in that one is under-utilising capital (margin).

As Socrates says (which also echoes the eleventh commandment), “The mission is not to get caught.

Grant.

 

[jacinto]

Jacinto,

Currency runs, etc aren’t a surprise – they have a record. Flying two jets into the WTC was an unknown event; James Baker’s criticism of the Bundesbank’s failure to maintain Dollar, Deutschemark interest rate co-ordination precipitating the ’87 crash was an unknown and unforeseen event. Indeed, one can speculate or construct any number of extreme, but theoretically possible, situations (background of LTCM’s downfall). However, given they’ve never happened (as my first two examples) they (will) get an appropriate risk-weighting, ie almost zero.

To include Mr Soros’s remark, “preparing for the unexpected and knowing what may arise and how to deal with it when it does”: A reasonable measure would be, what’s the biggest daily move (20% down in ’87), now double it. From my point of view, that is a potential risk. After all, records are made to be broken. However, this could also be counter-productive in that one is under-utilising capital (margin).

As Socrates says (which also echoes the eleventh commandment), “The mission is not to get caught.

Grant.

Fair points all. I do not think we are in disagreement, though.

Under the above definition of risk, then events that are called risk, are events that cannot be predicted, or even expected at times. Hence the "lack of knowledge of a probability of the event". However, this doesnt mean that one should not prepare for the worst.

Not knowing a probablity distribution for a worse-case scenario, and not preparing for a worse-case scenario are two very different things.

One is understanding risk, and the other is risk management

j

 

[SOCRATES]

You must not be swimming where the fishermen cast their nets.

You must be a loner.

Split

This is the best comment you have made so far on this thread. Congratulations !

It is not so much that I am a loner, it is that I am viewed as being cast adrift on a raft surrounded by sharks circling round and round who believe they are going to be fended off with a boathook or an oar or suchlike, but their vain expectation is that I will provide lunch for them...

To their horror and dismay, when they get too close they get prodded with a high voltage prod and then swim off to think of other tricks and then they come back and get prodded again, and this will go on until all positions are closed at a profit and I will prove my case.

It would not occur to the sharks to learn and modify their behaviour.

No, they just do what they have been accustomed to doing all their lives, it is not my fault, I assure you, it is theirs.

I am enjoying this immensely.

The electric prod is also useful in the event of the Black Swan venturing to swim too near, just in case....:cheesy: ...by the way.

 

[grantx]

Jacinto,


“Not knowing a probability distribution for a worse-case scenario, and not preparing for a worse-case scenario are two very different things.” There’s a joke, here: “Do you know the difference between ignorance and apathy? I don’t know and I don’t care”.

The point in my last post was that while not knowing the probability of a worse-case scenario, one can always assume the possibility (and worse) and adjust (manage the risk) accordingly. This may seem pretty obvious, if somewhat over-cautious, so why the monumental failures of hedge funds, etc? I think it simply boils down to the fact that it’s “other peoples’ money” and possibly self-belief in immortality.

“I do not think we are in disagreement”. I agree.


Grant.

 

[Splitlink]

Jacinto,


I think it simply boils down to the fact that it’s “other peoples’ money” and possibly self-belief in immortality.


Grant.

I'm sure that you are right, there. Even if they don't fail, the shareholders, usually, get a better return on their money than the fund investors.

Split

 

[Splitlink]

This is the best comment you have made so far on this thread. Congratulations !

It is not so much that I am a loner, it is that I am viewed as being cast adrift on a raft surrounded by sharks circling round and round who believe they are going to be fended off with a boathook or an oar or suchlike, but their vain expectation is that I will provide lunch for them...

To their horror and dismay, when they get too close they get prodded with a high voltage prod and then swim off to think of other tricks and then they come back and get prodded again, and this will go on until all positions are closed at a profit and I will prove my case.

It would not occur to the sharks to learn and modify their behaviour.

No, they just do what they have been accustomed to doing all their lives, it is not my fault, I assure you, it is theirs.

I am enjoying this immensely.


The electric prod is also useful in the event of the Black Swan venturing to swim too near, just in case....:cheesy: ...by the way.

If you were sitting on a raft with a high voltage prod, you'd be very fortunate, indeed. In fact, you are lucky to have a raft to sit on.

I suggest that it would be better not to have been identified as food, in the first place. Perhaps, mingling with the sharks might be a safer option, but you need to be fearless and have cold-blooded cunning to do that. I'm sure that now that I have mentioned these attributes you will tell us that you have them, too

Split.

 

[Profitaker]

It is about preparing for the unexpected and knowing what may arise and how to deal with it when it does.

By definition, you cannot prepare for the unexpected, because it is....unexpected. Yes you can prepare for the expected, but not the unexpected.

If one were prepared for the unexpected one would never sell naked Puts.

 

[superfly]

Nuke proof

If you can callibrate your betsize/scaling, so that a drop of -/-40% in the underlying overnight might only eat a few % of stake, then W.

In case your wrong about the direction you may always light a few candles and hold them to expiry to cash on the 85%.

If however the 85% is not correct or not constant, it might be a whole other ballgame.

few%= risk-tollerance

 

[grantx]

Spitlink,

"Even if they don't fail, the shareholders, usually, get a better return on their money than the fund investors." Ain't that the truth. What's preferable? I'll stick with the shareholders here: a greater certainty of a small return vs a greater uncertainty of a larger return - less risk, less reward.

Illustration from International Herald Tribune last Monday: To end 2006, Goldman Sach’s $10bn Global Alpha hedge fund generated around $700 million in fees, made up of 1.5 - 2.0% management fees, 20% of any profit.

The fund suffered its first annual loss in 2006 at down 6%. “Before the fund can take its 20% in 2007 (it) must first make up the 2006 loss”. So, presumably, they’ll still take their 1.5 – 2.0% management fees, or c $15 – 20 million (I define billion as 1,000,000,000 or a thousand million). I’m sure they’ll scrape by somehow.


Grant.

 

[starspacer]

This is the best comment you have made so far on this thread. Congratulations !

It is not so much that I am a loner, it is that I am viewed as being cast adrift on a raft surrounded by sharks circling round and round who believe they are going to be fended off with a boathook or an oar or suchlike, but their vain expectation is that I will provide lunch for them...

To their horror and dismay, when they get too close they get prodded with a high voltage prod and then swim off to think of other tricks and then they come back and get prodded again, and this will go on until all positions are closed at a profit and I will prove my case.

It would not occur to the sharks to learn and modify their behaviour.

No, they just do what they have been accustomed to doing all their lives, it is not my fault, I assure you, it is theirs.

I am enjoying this immensely.

The electric prod is also useful in the event of the Black Swan venturing to swim too near, just in case....:cheesy: ...by the way.

High voltage prod in water! Careful Soc, this may be a subtle ploy the sharks are using to catch you off balance so that you fall in the water & get electrocuted!

 

[SOCRATES]

By definition, you cannot prepare for the unexpected, because it is....unexpected. Yes you can prepare for the expected, but not the unexpected.

If one were prepared for the unexpected one would never sell naked Puts.

Rubbish again. Complete and utter spheres.

 

[SOCRATES]

Excellent.

If a person is aware of a risk(s), does the risk(s) still exist?

What is an inherently risky market?

A risky market is one in which you are guessing or gambling....and one you should not be in because you don't know what you are doing.

 

[Profitaker]

Excellent.

If a person is aware of a risk(s), does the risk(s) still exist?

What is an inherently risky market?

Yes the risk still exists and doesn't change as a function of awareness, unfortunately.

Any investment where there is a probability of loss, however small that probability may be, must therefore be inherently risky.

 

[zupcon]

Rubbish again. Complete and utter spheres.

Perhaps he means one would never sell naked puts exclusively

 

[SOCRATES]

High voltage prod in water! Careful Soc, this may be a subtle ploy the sharks are using to catch you off balance so that you fall in the water & get electrocuted!

No, not exactly...because I am wearing a safety harness that guarantees I will not fall in..... ....so every shark and sharklet that appears and smiles at me gets frazzled...