Plain Vanilla Options Trades.

[ducati998]

It has been said that the Writer has the edge over the Buyer, and I believe this to be true from simply looking at the 3 to 1 ratio of successful end results of writing over buying. However, I, like a few others, submit that this has not been proven by the exercise completed. Simple logic is all that is required to conclude this. In addition, the "edge" has never been adequately defined. It is up to the subjective opinion of the reader to define this for themselves. Therefore, the stated aim of this thread has NOT been accomplished.

It hasn't been *proven* because it is incorrect.
Anyone who understands how Options are priced, understands that the purchase of a CALL can offer exactly the same 3:1 win:loss ratio.

The difference is that a purchased call has limited risk, and unlimited reward [theoretically]
The sold naked PUT, has unlimited risk [theoretically] and limited reward.

The problem is that Socrates, hasn't the faintest idea what he is talking about.
20 winning trades statistically is pissing in the Pacific, and measuring the depth to check if it's risen.

He could place 100 winning trades, and one bad loser could wipe him out.
The return on capital that he is realising is miniscule for the level of risk, that's why he needs to close them out as fast as possible, thus reducing an insignificant return to a really, really insignificant return.

jog on
d998

 

[Profitaker]

Jesus Christ Starspacer. Drivel on unprecedented scale (well almost).

Since the basic maths on probability and expectancy is clearly beyond you, let me ask you a more junvenille question;

Looking at extreme ends of the option trader spectrum......which camp is most likely to have made massive gains from option trading - writers or buyers ? And which camp is most likely to have made massive losses from options trading - writers or buyers. That should be an easy one Starspacer.

 

[starspacer]

But again, PT, and let me say this in the politest and most respectful possible way.

Your rationale is entirely correct, but your underlying premise is deeply flawed. Because of this, your entire argument falls away. Like a great steel monolith, built on wooden stilts, with a famished army of woodlice nibbling away at the foundation.

But, you must be careful. Some woodlice are able to roll into a ball-like form when threatened by predators. They can then jump up suddenly and jab their armoured spike into the predator, causing fearful pain.

Now the giant woodlouse spider. I wouldn't even go there if I were you.

 

[starspacer]

Permit me to be excused for an hour or two.

I have a Socrataiin meeting of thought to prepare for.

Thank you.

star spacer

 

[PKFFW]

The Socrataiins are a very small group of people who have undertaken the extraordinarily difficult journey from Herdia. Once they found this paradise island, they determined that it must remain so & not become destroyed by greed, avarice and poor thinking. They built magnificent cultural buildings, the like of which had never been seen before. These buildings blended perfectly with the scenery and were of extraordinary aesthetic beauty.

Now wait a minute. You, Soc etc etc have all claimed on numerous occassions that traders(Socrataiins in your story) are born and not made. So where does this extraordinarily difficult journey come into it? You can't go mixing and matching your allogorical tales and philosophies!

Socrataiins enjoy an Elysian life, but one they are determined to keep. Even now, they are building a truly astounding defence shield, which one day, will be needed to boomerang away the enormous influx of Herdians, who are, even now, beginning to gather at the gates.

Why the defence shield if Socrataiins are born and not made? Simple Herdians can't possibly become Socrataiins because they weren't born there!!

Now if Socrataiins are born not made the defence shield is not necessary. If the Herdians can make the journey to this fabled island then the defence shield wont help. So which is it?

Cheers,
PKFFW

 

[PKFFW]

Precisely, exactly. Everything is known in advance. I have a dinner guest you would all die to meet and that Bully and chums admire greatly but have made a brief excuse just to pop in to see what is going on here.....Tomorrow when all the divinations are made and the number crunch is complete I will be able to give you a clearer idea of what I will do next. But now I have to return for the coffee and mints.

Just a quick question regarding this future knowledge. I know it's off topic but since you seem so willing to discuss other off topic things I thought I might ask in the hope you could give an answer.

You have made 20 trades. Some were more profitable than others. If everything is known in advance would you not have been better off simply taking the one that was going to make the most money and load up to the hilt on that one trade. You would have made far more money and saved yourself alot of time and energy.

Why take trades you know are going to make less than another trade?

Cheers,
PKFFW

 

[dc2000]

Precisely, exactly. Everything is known in advance. I have a dinner guest you would all die to meet and that Bully and chums admire greatly but have made a brief excuse just to pop in to see what is going on here.....Tomorrow when all the divinations are made and the number crunch is complete I will be able to give you a clearer idea of what I will do next. But now I have to return for the coffee and mints.

He hasn't paid £5k by any chance to learn the secrets of trading from the kitchen table?

Curious, if everything is known in advance then how did you blow your wad in the early days??

 

[SOCRATES]

Mmm, 126 pages.

Your excellent post gives me an opportunity to repeat myself, again. Socrates edge is based on his location of the Black Swan and his rolled up newspaper. That is, in fact, the only argument I have against his strategy and, if it was not for that, I would be writing away like Agatha Christie on skates. The fact that the loss could mean everything is inhibiting to me, though. As I heard once "I've been eating regular meals a long time, it's getting to be a habit".

What you failed to explain was why you left option trading? Probably, for the same reason as I. I found that buying calls, even though I got the direction right, was unlucrative because of time decay. When I found out where to avoid as much decay as possible ,I found the options were unattractive.

The comparison of writing against buying is not made on an even playing field and the former is, deceptively, attractive. Socrates, probably, thought that he ate Black Swan for dinner last night. Black Swan's dad is around the corner, now.

Split

I have just come in. You see Spitlink....I have attained a lot of experience in dealing with crowds, but only in the past few years. I spent years and years in isolaton with all my meals served on trays and not going out (....not getting out much you see.... ..) and during this period which went on for years and engaged my attention and effort truly 24 / 7 I missed out a lot with regard to the collective behaviour of humanity. I succeeded in perfecting a series of seamless methodologies but was somewhat "naive" about "people" and the antics they could get up to in mainstream life.

When I finished and was satisfied all the methodologies were perfect I was then able to turn my attention to people. I became avidly interested in what can only be called Urban Anthropology, which is the study of the human creature in a modernistic environment. I approached this excercise according to my frame of reference which I thought was the norm.

I was in for a series of rude shocks. It caused me to change my posture because whereas till then I would be open to the idea of making allowances and excuses for the behaviour of people whose conduct was unacceptable...suddenly....one morning...my rubber band....my rubber band of tolerance and patience and generosity and goodwill...suddenly snapped.. ...with the consequence that I suddenly woke up to the reality of the carbunklery of humanity.

This awakening is formative, I assure you. In consequence of this I was forced to arrive at several conclusions, not about perceptions, but about stark realites relating to people and what I describe in other threads as "The Inabilities".

In direct consequence of these series of unexpected and bitter lessons, I was forced to modify aspects of my attitudes, leading up to my current posture.

For this reason you will read how it is that I make reference to rolled up newspapers, and the 74 Gun Warship, and recently added the bulldozer, the Maltese Bull with the horns in the groin and other allegories, because that is what they are, simply allegories which I share with a carefully selected and very small circle of individuals who are hand picked, and who are allowed to be "in the know" so to speak to the exclusion of all others as to the real meaning of these allegories.

It therefore means you must not take my statements literally, lest the conclusions you arrive at are the wrong ones.

For this reason I have been taught among other things, not to be generous with one's hard earned knowledge and expertise and to guard one's edges at all cost.

 

[SOCRATES]

Think of a balanced six sided dice, numbered 1 thru 6. What are the odds of throwing a number 3 ? or throwing a number 5 ? 6/1 I here you say, or 16.7% I here you say too.

So far so good.

Now, imagine that the same dice will pay out the value of whatever number is thrown. For example, throw a 3 get paid £ 3, throw a 5 get paid £ 5 and so on.

What is the fair value of the number 1 as a bet ?
Is it £ 0.08
Is it £ 0.16
Is it £ 0.50
Is it £ 0.75

What is the fair value of the number 4 as a bet ?
Is it £ 0.32
Is it £ 0.64
Is it £ 1.00
Is it £ 2.00

What is the fair value of the number 2 AND number 6 as a combined bet (think of it as a strangle)
Is it £ 1.00
Is it £ 1.33
Is it £ 1.99
Is it £ 2.10

There is no need to reply with your answer. But I post it up really to say that anybody that cannot answer the above very basic probability question cannot possibly understand how options work and how options are priced and therefore should not be trading options, at least not unless they are prepared to lose their shirt, and then some.

Nonsense again...... ........none of this has to do with probability.....it has to do with very near certainty...as every outcome is known in advance...everything is known in advance... ...that is why you cannot be included in anything worthwhile, because you disqualify yourself by your thinking and by your conduct....

 

[SOCRATES]

Class pure class
But answer me this my friend what makes you believe that Soc is wealthy ?
How do you know Soc is not a Herdian purporting to be a Socrataiin?
Do you know why scams work soooo well? because it is easy to sell a dream people want to believe in! wake up smell the coffee

.

 

[SOCRATES]

It hasn't been *proven* because it is incorrect.
Anyone who understands how Options are priced, understands that the purchase of a CALL can offer exactly the same 3:1 win:loss ratio.

The difference is that a purchased call has limited risk, and unlimited reward [theoretically]
The sold naked PUT, has unlimited risk [theoretically] and limited reward.

The problem is that Socrates, hasn't the faintest idea what he is talking about.
20 winning trades statistically is pissing in the Pacific, and measuring the depth to check if it's risen.

He could place 100 winning trades, and one bad loser could wipe him out.
The return on capital that he is realising is miniscule for the level of risk, that's why he needs to close them out as fast as possible, thus reducing an insignificant return to a really, really insignificant return.

jog on
d998

All of it is obvious ducatti, it iis just your torpor prevents you from understanding, that's all.

 

[SOCRATES]

Jesus Christ Starspacer. Drivel on unprecedented scale (well almost).

Since the basic maths on probability and expectancy is clearly beyond you, let me ask you a more junvenille question;

Looking at extreme ends of the option trader spectrum......which camp is most likely to have made massive gains from option trading - writers or buyers ? And which camp is most likely to have made massive losses from options trading - writers or buyers. That should be an easy one Starspacer.

Why do you persist in showng yourself up by making such stupid pronouncements ?

 

[SOCRATES]

He hasn't paid £5k by any chance to learn the secrets of trading from the kitchen table?

Curious, if everything is known in advance then how did you blow your wad in the early days??

I am inaccessible and virtually unaffordable to all of you.....

 

[SOCRATES]

Just a quick question regarding this future knowledge. I know it's off topic but since you seem so willing to discuss other off topic things I thought I might ask in the hope you could give an answer.

You have made 20 trades. Some were more profitable than others. If everything is known in advance would you not have been better off simply taking the one that was going to make the most money and load up to the hilt on that one trade. You would have made far more money and saved yourself alot of time and energy.

Why take trades you know are going to make less than another trade?

Cheers,
PKFFW

Futurologically speaking, everything is known in advance, and what is more can be clearly seen in net future time brought back to net present time.

Each was different to illustrate Variety.

Notice they are different strikes and in different months at different prices.

If I had opted to do what you suggest then you would turn round and accuse me of just lumping everything into one and hoping for the best..... ...which is not the case,

All of them are profitable and have been from day one. Also you will see I give each a different weighting, some 2, others 23, some 6 and so on...and what is more, all of them will expire worthless or near worthless.

 

[SOCRATES]

A little allegory might help to illuminate the ideas submitted in this thread, as clearly, many don’t (or are unable to) grasp true Socratic thinking.

There is a world called Tulipsia. This world is quite small and consists of one large country called Herdia and one small island called Socratai.

The 2 places are very different. Over 95% of the world live in Herdia. It is a very unpleasant place. Full of people viciously competing amongst themselves to out do each other, but in a way that appears that they are actually helping one another. It is rather like Dante’s hell. A place where people have cut down all the trees to build identikit homes. Mass factory produced food is injected with hormones to feed the ever expanding population. A dense smog hangs permanently over the country, which effects the ability of the people to clearly think. Rather like a smog on the brain. The Thought Police, who control Herdia add mind-numbing chemicals to this smog so that they can keep the population suitably in check.

For the people in Herdia, although life is grim, they daren’t make the long and gruelling journey to Socratai. They are told by their Thought Police that the Socrataiins are deranged thinkers and cannibals who enjoy nothing better than dining on the sweet delicacy of Herdian flesh. That said, there is quite a thriving trade between the 2 countries. Herdia exports smog filters, which are needed by Socrataiins to keep their island from becoming polluted from the dense clouds that drift across from Herdia. In exchange, Socrataiins write options, which are always in great demand.

Unfortunately, Herdia runs a substantial trade deficit with Socratai. The Socrataiins, being of generous nature regularly write off this debt.

The Socrataiins are a very small group of people who have undertaken the extraordinarily difficult journey from Herdia. Once they found this paradise island, they determined that it must remain so & not become destroyed by greed, avarice and poor thinking. They built magnificent cultural buildings, the like of which had never been seen before. These buildings blended perfectly with the scenery and were of extraordinary aesthetic beauty.

Although the Socrataiins are less than 5% of the world population, they earn 95% of the wealth. Now the Socrataiins have the genius necessary to take 100%, but they realize that this would create enormous jealousy and that they would be eventually invaded by the Herdians. They gather together regularly for collective meetings of thought and permit Herdia to continue to believe that Socratai is an island of deluded lunatics and narcissists, a truly unpleasant place. They also, now & again write an option which loses a modest amount so that the Herdians can continue to feed themselves.

Socrataiins enjoy an Elysian life, but one they are determined to keep. Even now, they are building a truly astounding defence shield, which one day, will be needed to boomerang away the enormous influx of Herdians, who are, even now, beginning to gather at the gates.

You forgot to mention I am the honorary appointed gatekeeper to those very gates..

 

[PKFFW]

Futurologically speaking, everything is known in advance, and what is more can be clearly seen in net future time brought back to net present time.

Each was different to illustrate Variety.

Notice they are different strikes and in different months at different prices.

If I had opted to do what you suggest then you would turn round and accuse me of just lumping everything into one and hoping for the best..... ...which is not the case,

All of them are profitable and have been from day one. Also you will see I give each a different weighting, some 2, others 23, some 6 and so on...and what is more, all of them will expire worthless or near worthless.

Ok, fair point in relation to this thread. You wanted to show variety.

That gets back to my other question though. If you know the outcome in advance how does making profitable trades prove your hypothesis? You showed variety by choosing differnt strikes, months, prices etc. You could have just as easily shown variety by choosing to buy calls too. You know the outcome so you would still make a profit. So again it seems the edge you are proving has nothing to do with writing over buying but rather your ability to correctly call market timing and direction. Is that not so?

Cheers,
PKFFW

 

[SOCRATES]

If everything were to be known in advance, would you write options?

I'll give my answer:

No.

U r right....I would...but you wouldn't......

 

[dc2000]

I am inaccessible and virtually unaffordable to all of you.....

doesn't answer the questions though

FWIW I could buy and sell you all day long but Im not in the market for another domestic

 

[SOCRATES]

Ok, fair point in relation to this thread. You wanted to show variety.

That gets back to my other question though. If you know the outcome in advance how does making profitable trades prove your hypothesis? You showed variety by choosing differnt strikes, months, prices etc. You could have just as easily shown variety by choosing to buy calls too. You know the outcome so you would still make a profit. So again it seems the edge you are proving has nothing to do with writing over buying but rather your ability to correctly call market timing and direction. Is that not so?

Cheers,
PKFFW

Those are Star Chamber matters not suitable for dissemination in a public forum.

But even at a rock bottom statistical level "it is obvious, it is screaming at you"...as Pod G says, because the buyer has only 1 chance in 3 of getting it right, and because the writer has 3 chances out of 4 of getting it right. So just grasping at a rock bottom statistical level is sufficient to illustrate and prove the point that the writers have the edge over the buyers.

 

[laptop1]

On the losing side of option trading the writer will always lose more than a buyer.

Bottom line is, since the writer doesn't own the option,SOCRATES doesn't have any control on the losses that could occur. he only needs one bad trade to wipe him out.