Plain Vanilla Options Trades.

[Splitlink]

The argument of the thread is that writing, particularly puts, has the edge over buying calls.

My view is that, no matter how long the exercise takes, if the last trade can wipe the trader out then writing naked has no edge and it doesn't matter whether there were 9 trades or 99. It is no argument to say on expiry "Look, I told you so, the options have expired valueless." The problem had to be faced this week and experienced option writers (and I admit, I am not one, but God gave me a brain and the power of logic) would be hedged or out. If they are hedged then, according to how they have done it, they may decide to hold on but, if they are naked, they were playing a dangerous game from the start.

What gets my goat is that I hate to be patronised by an incompetent who does not have the courage to admit a mistake. I admit that this attitude has annoyed me and, so as not to experience a repetition, I have put Socrates on my ignore list, the first time I have used this since I joined. He will not care, he has plenty of others to read his posts, but to me, it is a great relief to be clear of him.

Split

 

[Profitaker]

What gets my goat is that I hate to be patronised by an incompetent who does not have the courage to admit a mistake.

Indeed, he is blood boiling material, not worthy of the time of day.

He has demonstrated the folly of the "do nothing" approach to risk management, watching small losses turn into massive losses and presiding over margin money which has, quite literally, gone into orbit. Anybody that knew anything about options would be reducing delta at the point near P/L break-even. Either by selling calls, shorting futures, closing out open Put positions, or any combination thereof.

Far from proving any edge, he has proved just how dangerous options are in the wrong hands. If nothing else, this thread was worthwhile for that reason alone.

 

[Jack o'Clubs]

To be honest I feel a bit sorry for CYOF. I'm sure Soc can weather the loss (of money if not pride), but his little friend cheerfully copycatting his trades as a beginner without really understanding the risks has presumably been blown out of the water. As Profitaker says, at least this thread serves as a salutory tale.

 

[chump]

Split,
Do you have any idea of his asset worth ?...if not then you are absolutely unqualified to make a judgement as above...you are in effect saying what it would mean to you to be in this position rather than what it means to him ...you see?....the numbers you are talking about here might be his idea of a pizza for two in which case the monetary outcome of this would have been considerably let important to him than say the goal of showing that 80% of the writes would expire worthless.....if the latter fails then that his a different question.

I am not defending him regardless of what peeps reading this think..I am being objective as nearly all the comments I have read here appear to be based upon how this position would feel if it were THEIRS ,BUT it isn't is it !

Focus ...one aim....what value will the options expire at ? there is nothing else and there never was as we never had any data to evaluate anything else.

As for our mad Irishman I doubt he is trading 'naked' at the moment.

 

[Splitlink]

To be honest I feel a bit sorry for CYOF. I'm sure Soc can weather the loss (of money if not pride), but his little friend cheerfully copycatting his trades as a beginner without really understanding the risks has presumably been blown out of the water. As Profitaker says, at least this thread serves as a salutory tale.

One of the first questions to ask, in any kind of trading, when required to place margin is "What do they require my margin money for, if it's such a dead sure way to make money? That was the argument put to the Lloyd's "names". " Great way to make money, absolutely foolproof but, just put your house on the line, if you don't mind, just to be on the safe side." Safe for whom?

The second question should be "Why are those other guys posting on this thread so nervous? Where there's smoke, there's fire. He should have worked on the figures, it's not rocket science.

Split

 

[Lightning McQueen]

To be honest I feel a bit sorry for CYOF. I'm sure Soc can weather the loss (of money if not pride), but his little friend cheerfully copycatting his trades as a beginner without really understanding the risks has presumably been blown out of the water. As Profitaker says, at least this thread serves as a salutory tale.

I too have to admit concern for CYOF, the chap hasn't been seen since Tuesday, sinking fast no doubt

CYOF
Last Activity: 27-02-2007 05:55 PM
Offline

Im very sure Socrates can handle whats happening, I await his weekend update. The rolled up newspaper must be a tad worn out, a nice new fat weekend edition will do the trick

 

[chump]

"it's not rocket science." ...it isn't ,but you would need to be one to make an objective judgement in the face of inadequate data ,but you seem intent on trying.

 

[millsy500]

If socs has been trading these options say for the last 5 years,on current form, would this week be such a problem??

 

[Splitlink]

"it's not rocket science." ...it isn't ,but you would need to be one to make an objective judgement in the face of inadequate data ,but you seem intent on trying.

No, I'm sorry for him, too. But it's his fault if he got caught because there were plenty here who were warning. I guess that we were not convincing enough. We'll have to do better

How, I don't know, the opposition is sooooo convincing

Split

 

[Profitaker]

If socs has been trading these options say for the last 5 years,on current form, would this week be such a problem??

Based on “current form” he’d have been wiped out in May 2006.

 

[SOCRATES]

What an interesting speculative commentary this is turning out to be from all of you.

I assure you I am not upset in the least, I just find it morbidly horrific.

It reinforces what I already know and think, and causes me to act the way I do.

 

[Profitaker]

Socrates

Given that it was your stated intention of this thread to "prove" that option writers have some sort of inherent edge over option buyers, how would you say it's going, so far ?

 

[Jack o'Clubs]

What an interesting speculative commentary this is turning out to be from all of you.

I assure you I am not upset in the least, I just find it morbidly horrific.

It reinforces what I already know and think, and causes me to act the way I do.

Socrates,

Would you care to clarify whether:

1) The margins and P&L posted here are ballpark with what you're experiencing (ie 150k margin and £28k paper loss).

2) You're confident that you'll be proved correct in the long run, ie you're holding these to expiry come what may.

I think given where you've taken the thread so far it's not unreasonable to ask you to answer those points.

 

[stoic]

What an interesting speculative commentary this is turning out to be from all of you.

I assure you I am not upset in the least, I just find it morbidly horrific.

It reinforces what I already know and think, and causes me to act the way I do.

Sir,

With respect, your credability is now down the pan. Regardless whether you are right or wrong, what you have done is nullified the purpose of this thread. Since you are so fond of axioms and logic let me enlighten you. In mathematics to ask for a proof of a theorem requires you to supply the proof assuming the hyphothesis of course. To invalidate the theorem (show it is false) all you have to do is to provide ONE counterexample under assumption of hyphthesis. Note the disparity.

I am sure you can trade, but this thread is now null and void. I'm sure you are correct about the writer having the edge, but to do it by taking such a large loss is now besides the point.

 

[dc2000]

Hedging as part of OVERALL wealth.

Assumption is the mother of all fckups

Do not assume that Soc placed these trades anywhere else other than his head
Do not assume that Soc has an account large enough to hold even one of these 20 trades
Do not assume that this thread had any other purpose than to attract people to options trading as an easy way to riches
Do not assume that CYOF has taken any trade Soc was just not there when the trade went on so CYOF posted
Do not assume that Soc has been trading options for longer than 5 minutes do you not find it strange that he has only been pushing the options route since becoming the gatekeeper

Do look at the evidence this is a position that has gone bad to continue to hold and have to increase funding to hold that position is something even the most novice of traders soon learn is a bad thing
After Tuesdays large move down why would you not be exiting your positions at the end of the day an waiting for a new entry Thats what the professionals did and Im sure they will be taking them back later today and early Monday

 

[Profitaker]

DC

Wholeheartedly agree.

 

[Jack o'Clubs]

Assumption is the mother of all fckups

Do not assume that Soc placed these trades anywhere else other than his head
Do not assume that Soc has an account large enough to hold even one of these 20 trades
Do not assume that this thread had any other purpose than to attract people to options trading as an easy way to riches
Do not assume that CYOF has taken any trade Soc was just not there when the trade went on so CYOF posted
Do not assume that Soc has been trading options for longer than 5 minutes do you not find it strange that he has only been pushing the options route since becoming the gatekeeper

Do look at the evidence this is a position that has gone bad to continue to hold and have to increase funding to hold that position is something even the most novice of traders soon learn is a bad thing
After Tuesdays large move down why would you not be exiting your positions at the end of the day an waiting for a new entry Thats what the professionals did and Im sure they will be taking them back later today and early Monday

Agreed. The idea that a serious trader would undertake a buy-and-hold (or I guess in this case a write-and-hold) strategy and have to fund significant margin calls and sit on paper-losses just to prove a point to a bunch of people he'll never meet in his life is ridiculous. Clearly the trades were either never entered in the first place, or if they were have since been actively traded to manage risk. From here on its just a paper exercise to see where they end up expiring. The only point a newbie to options needs to take away is that even if writers have the edge, unless you can fund a several hundred thousand pound margin call, its totally irrelevant. And even if you could fund it, why would you want to when you could trade round it?

 

[rockseller]

I tend agree the writer have egde over buyer. Like other people have said here the risky of writing naked put is simply doesn't worth the trouble. Before all those position expiry Socrates is gonna be through hell of the ride. Now Socrates might be very wealth and can afford margin call. I take this is for demostration only. But do not try this at home for any newbie.

By the way i think both profitaker and socrates contribution on this thread has been outstanding. Profitaker for his counter augment and Socrates for putting his neck on the line. You have to respect anybody who is doing live trade.

I just wish augment could have conducted in more civilised fashion.

 

[Profitaker]

rockseller

Thanks. I think everybody (well almost) has made a valuable contribution here. It is indeed a shame that those that cannot get their point over using reasoned argument have to resort to rudeness and ridicule.

For what it's worth, I'm short March 6025 Puts, not because I think the writers have the edge, but because I think volatility is overbought and the market oversold. I could be wrong on both counts....

 

[Glenn]

1. There is no evidence whatever that these are his calls or trades. He ignores demands to provide it even though it would be easy to do without giving anything sensitive away. So why take his word for it ?

2. If anyone "knew everything in advance" would they in their right minds have put these positions on ?
No sir.
In fact 'knowing' that the market would fall 350 points (or more !!!!!) they would have Bought the puts instead of selling them !

And then they would have waited until the bottom and then closed out with a fat profit and only then written Puts in the sure and certain knowledge (???) that they would get no margin problems whatever and get a guaranteed profit, and be able to put even more trades on as a consequence of having more capital and no margin problem.
Or at the very least waited and only written Puts at the bottom they 'knew' was coming instead of taking this big hit for all to see and some to ridicule.

Unfortunately discussion of all this is pointless because imho the real issue is something far deeper and outside the scope of trading skill, reason, logic and common sense.

Glenn