Best Thread The Options edge (Writing Vs Buying)

[ducati998]

It's no wonder people get confused, there are so many analogies utilized, that people lose track of the actual subject matter.

In Options if we look at some of the facts surrounding the use of *probabilities*.
When using *probabilities* to trade Options, probabilities are based on the Law of Large Numbers, thus, for probabilities to provide you with a theoretical edge, you must have a large number of trades.

Many trades = at least 100 positions.
If each credit spread [hedged position] exposes you to $2000 risk the;

100 postions = $200,000.00 exposure.
Of these, you expect, based on probabilities to win 90% as you have written very OTM.

Now based on your returns, say you take in 7% in premiums [a generous return on capital based on a 90% probability] you see that @ $2000 risk per trade, your $14,000.00 in premiums is amortized by 7/100 failed trades. [not inclusive of brokerage] On a 90% probability, 10 trades is the probable failure rate............you are almost guaranteed to lose??

Have a bad month, with 20 trades going south and suddenly writing starts looking decidedly uncomfortable.

jog on
d998

 

[andycan]

ducati998]andycan

The topic of the thread asks;
The "edge" does it lie with the sellers [writers] or buyers?
In this context, the skill set of the individual trader is irrelevant, as it is the strategy that is being examined, not the trader.

I believe that is what i have been doing
In regards to your assertions;



Incorrect.
You seem to have confused the underlying with Options.

incorrect i stated a simplistic view, i know the underlying there is nothing there you can teach me i assure you

#2 & #4
If the Option is purchased at a low IV value, and price stays below strike, but IV is revalued higher, buyer can win and sell at a profit.

This is view as an opportunity by the writer and not the opposite !! the writer does not care about size of the premium received in the same way as the casino view their customers
the size of the premium being high or low is irreleveant to the writer why??
because his stratergy is based on high probabilities the OTM put or the OTM calls will expire worthless in favour of the writer and against the buyer.
plus the writer has the edge of rolling for extra credit and still keep the initial credit, the fact is that not every option trader can be a writer.
only approved ones can write, just like casinos, its a license to print money are you seeing it now?
everyone knows that roulette odds are against the punter, the house has the edge yet they all play because like the lottery its based on hope not statistics.
if you had the same odds as the casino then and only then its a 50/50 you win or loss and in the long term nobody wins
but i would also say to be a writer you need to know options inside out and you have to have ineffect an ability to handle Black Swans which can be the nemesis to the unskilled writer not to the Master options trader


So, in effect, both the buyer and seller can win in three out of four scenarios, thus their *edges* are equal, which is the question the thread seeks to answer.

I believe if this is your point of view that is fine with me there is a fine line between theory and practice which in reality is worlds apart

jog on

Indeed




d998[/QUOTE]

 

[CYOF]

Andy

You need to consider the extreme moves that the market sometimes makes, up as well as down. If these moves are 3 times the normal size, then the profits a buyer generates in scenario 1) would make up for the losses gerenerated in scenarios 2), 3), and 4).

Simplistic I know, but do you see my point ?

Profitaker,

Lets clear a few things up here - so that no confusion may arise.

Socrates has posted a very good post over in the Psychology section - where Jon moved my little stories, the ones you liked so much.

Now, do you consider yourself a Fundamental Trader, or a Technical Trader.

And, whatever your fancy, is the information you are providing to us, based on actual trading experiences, or is it Inspirational.

This is a very important question, and you must answer it truthfully.

Only one person has replied, and that was Split, to my question regarding the most important thing to kow about trading Options for consistent profits.

Why is that?

Why are so many not wanting to discuss this very important thing.

Is it because it was posted by a mad Irishman, or is it just because it may be a very basic requirement for trading Options.

I am bewildered!

Please do enlighten us - please!

As for my post#411, I think I can forget about getting an answer to that, for if I can not get an answer to this simple question, then what is the point of continuing any further discussions.

I do not wan't to waste anyones time here, and I have no intention of wasting my own.

So, what do you think, is it a reasonable point that I make, or am I just dreaming!

 

[andycan]

et al

If I were to purchase a Deep in the Money Call, then the probabilities of the Call expiring ITM would be very high.

Would the *probability* of my making a profit be very high?
Not at all.

your statement is clearly giving the 'Edge' to the 'Writer' and you are at a disadvantage, even if your position expires DITM, ITM or OTM the 'THETA' and the time value has gone in favour of the writer
incidently i was reading through some of the post and one question that still sticks out like a sore thumb is post 411 would you care to answer this? i believe it was directed at profitaker but i would be interested to hear your opinion
this is another situation why the edge is in favour of the writer and against the the buyer

 

[CYOF]

It's no wonder people get confused, there are so many analogies utilized, that people lose track of the actual subject matter.

In Options if we look at some of the facts surrounding the use of *probabilities*.
When using *probabilities* to trade Options, probabilities are based on the Law of Large Numbers, thus, for probabilities to provide you with a theoretical edge, you must have a large number of trades.

Many trades = at least 100 positions.
If each credit spread [hedged position] exposes you to $2000 risk the;

100 postions = $200,000.00 exposure.
Of these, you expect, based on probabilities to win 90% as you have written very OTM.

Now based on your returns, say you take in 7% in premiums [a generous return on capital based on a 90% probability] you see that @ $2000 risk per trade, your $14,000.00 in premiums is amortized by 7/100 failed trades. [not inclusive of brokerage] On a 90% probability, 10 trades is the probable failure rate............you are almost guaranteed to lose??

Have a bad month, with 20 trades going south and suddenly writing starts looking decidedly uncomfortable.

jog on
d998

And what of yourself ducatti998,

Are you a Fundamental Trader or a Technical Trader - and like the question to Profitaker, is what you tell us based on actual trading experiences, or is it Inspirational?

Remember, one must be truthful to gain any real value from discussions.

 

[ducati998]

Soccy, andycan,CYOF

The Peanuts gang returns!

incorrect i stated a simplistic view, i know the underlying there is nothing there you can teach me i assure you

Well let's start with;

*Options greeks
*Applicability to Options trading & strategies
*Applicability to the subject line of this thread
*Ability to present content other than mere *opinion* .

After the topic has been addressed, possibly your atrocious spelling, grammar and presentation.

CYOF peanut.

You are dreaming son.

jog on
d998

 

[ducati998]

andycan

The topic of the thread asks;
The "edge" does it lie with the sellers [writers] or buyers?
In this context, the skill set of the individual trader is irrelevant, as it is the strategy that is being examined, not the trader.

In regards to your assertions;



Incorrect.
You seem to have confused the underlying with Options.

#2 & #4
If the Option is purchased at a low IV value, and price stays below strike, but IV is revalued higher, buyer can win and sell at a profit.

So, in effect, both the buyer and seller can win in three out of four scenarios, thus their *edges* are equal, which is the question the thread seeks to answer.

jog on
d998

Constant repetition of the basics becomes tiresome.

jog on
d998

 

[garethb]

]This shows that an edgte is more than just a statistical probability if applied to anything not just ruled by chance outcomes.

I quite agree, including your implication that the market is not ruled purely by chance outcomes. The reason for my casino post was that it is frequently stated that the writer of options will have more winning trades than the buyer and that this represents an edge. I was trying to demonstrate that it is quite possible to have a very healthy win % but lose money over time.

Regards,

Gareth

 

[SOCRATES]

Soccy, andycan,CYOF

The Peanuts gang returns!



Well let's start with;

*Options greeks
*Applicability to Options trading & strategies
*Applicability to the subject line of this thread
*Ability to present content other than mere *opinion* .

After the topic has been addressed, possibly your atrocious spelling, grammar and presentation.

CYOF peanut.

You are dreaming son.

jog on
d998

Go on then, if you must...but no ants this time please ducatti.:cheesy:

 

[CYOF]

Constant repetition of the basics becomes tiresome.

jog on
d998

Ahhmmm, am I missing something here?

Have the answers to my basic questions gone un-noticed to me?

If so, I do apologise, but maybe we can re-state and then move on?

Thank You.

 

[Profitaker]

If my postman asked me how much money I'd made last year I'd tell him where to get off. In a similar vein you contribute nothing to this thread, infact it's not even that good - your contribution is worse than nothing - it's actually negative. Same goes for that prize buffoon Soc. And yet you expect me to engage you and answer your questions ? I'd rather pluck my eyebrows !

Somebody here has actually bothered created a thread especially for you and Soc, where you can both bask and wollow in your self proclaimed superiority, and enlighten others in the process. A win-win situation surely. Yet you and he (it) still prefer to spend (and waste) all of your time on this thread. Bizarre.

 

[andycan]

Soccy, andycan,CYOF

The Peanuts gang returns!

well if we offer peanuts the monkeys will come!!
welcome!!


Jog On
[/QUOTE]

 

[ducati998]

Ahhmmm, am I missing something here?

Have the answers to my basic questions gone un-noticed to me?

If so, I do apologise, but maybe we can re-state and then move on?

Thank You.

Are you missing something?
*the plot
*sanity
*ability to stay on topic

Have the answers to your questions gone un-noticed?
Let me answer you with an analogy, as this seems to be your preferred method of communication......................

If you were in charge of zoo security...................we have stolen the elephants.

We have moved on, ten pages+ actually, but then, hell son, the elephants are half-way back to Africa.

jog on
d998

 

[ducati998]

well if we offer peanuts the monkeys will come!!
welcome!!


Jog On

[/QUOTE]

Or the Organ Grinder.
This is of course your primary problem. To a man with a hammer, everything resembles a nail.

jog on peanut
d998

 

[andycan]

Or the Organ Grinder.
This is course your primary problem. To a man with a hammer, everything resembles a nail.

jog on peanut
d998[/QUOTE]
i guess you would know!
i trade for a living

up your monkey!

 

[ducati998]

Or the Organ Grinder.
This is course your primary problem. To a man with a hammer, everything resembles a nail.

jog on peanut
d998

i guess you would know!
i trade for a living

up your monkey!

[/QUOTE]

Having demonstrated the power of your intellect, I think that in the not to distant future your last words may read;

I traded for a living.
Now I hammer nails.

jog on peanut
d998

 

[SOCRATES]

If my postman asked me how much money I'd made last year I'd tell him where to get off. In a similar vein you contribute nothing to this thread, infact it's not even that good - your contribution is worse than nothing - it's actually negative. Same goes for that prize buffoon Soc. And yet you expect me to engage you and answer your questions ? I'd rather pluck my eyebrows !

Somebody here has actually bothered created a thread especially for you and Soc, where you can both bask and wollow in your self proclaimed superiority, and enlighten others in the process. A win-win situation surely. Yet you and he (it) still prefer to spend (and waste) all of your time on this thread. Bizarre.

"Wallow" and not "wollow"

You cannot complain I do not tell you everything.

 

[SOCRATES]

Soccy, andycan,CYOF

The Peanuts gang returns!



Well let's start with;

*Options greeks
*Applicability to Options trading & strategies
*Applicability to the subject line of this thread
*Ability to present content other than mere *opinion* .

After the topic has been addressed, possibly your atrocious spelling, grammar and presentation.

CYOF peanut.

You are dreaming son.

jog on
d998

Ducatti please..... try to keep calm....there is no need for you to get agitated in the way you do.

I am very disappointed because I expected another long missive exalting the merits and virtues of your convoluted theorising, but it appears you have become distracted.

I hope and expect you will give us the benefit of your wisdom soon, and recite chapter and verse wothwhile ideas valid to you however arcane to us.

Please....ducatti....please.

If you want to include the ants this time, on this occasion we are willing to put up with it.

All is forgiven ducatti...you must not take everything so seriously....jusst give us the benefit of your ....ahem....wisdom..

 

[andycan]

Having demonstrated the power of your intellect, I think that in the not to distant future your last words may read;

I traded for a living.
Now I hammer nails.

jog on peanut
d998[/QUOTE]

hahahahahahahahhahahahaha
you are funny!!
take a break maybe have a cup of tea i recomend PG tips
kind regards

 

[zupcon]

take a break maybe have a cup of tea i recomend PG tips

I think recommending PG Tips possibly violates this forums guidelines with respect to advertising.

and I think there are 2 m's in recommend

regards
zup