Best Thread The Options edge (Writing Vs Buying)

[ducati998]

Good morning peanuts, see that you have been busy overnight.
I notice also that you have managed to convert a correct market call into a reduced profit.
Now that was a neat trick.

Not only did you assume a large *potential risk* you didn't even get paid the full premium.
For a the assumption of a smaller risk, you could have been paid a larger reward.

The only *edge* that you have so far demonstrated, is the *edge* of the cliff, that you could have fallen off.

jog on peanuts
d998

 

[DT]

edit - oops wrong thread

still my 2p's worth

there isn't a general edge in writing options in an efficient market

saying that there is an edge is like trying to argue there is an edge in always going short with futures

 

[Profitaker]

DT

It isn't this thread that's confused, but a small and very vociferous minority. Otherwise you are spot on.

 

[DT]

oop - just stuck my reply in the wrong thread - meant to post in soc's one

 

[ducati998]

DT

In an efficient market why should there be a general edge in simply writing options? It is completely nonsensical.

But is the market efficient?
If so, in what timeframe?

If the market was efficient would we have;

*lognormal distributions
*are distributions lognormal?
*what then accounts for skewness & kurtosis?

And then of course we have the ants...........always the ants.

jog on
d998

 

[DT]

well clearly the markets aren't completely efficient else you couldn't make a living from them. But I don't see why they'd simply allow for a general inherent edge for option writers.

Though inefficiencies within the markets provide opportunities for writers&buyers of options. I'm not an options trader so I don't want to get bogged down in this debate. However I don't feel that anyone has yet demonstrated that there is any general edge in writing options.

don't most options traders try to take a neutral view anyway & trade vol etc.. :?:

 

[ducati998]

well clearly the markets aren't completely efficient else you couldn't make a living from them. But I don't see why they'd simply allow for a general inherent edge for option writers.

Though inefficiencies within the markets provide opportunities for writers&buyers of options. I'm not an options trader so I don't want to get bogged down in this debate. However I don't feel that anyone has yet demonstrated that there is any general edge in writing options.

don't most options traders try to take a neutral view anyway & trade vol etc.. :?:

In short timeframes markets are indeed inefficient.
Of course, definitions of *short* will vary from trader to trader.
However in the *long-run* markets are highly efficient.

Therefore that contradiction implies that in the shorter timeframes, corrections to value take place. We therefore have immediately two components, time & price.

*Time can break down into calender time and volatility
*Price can break down into volatility and value

Quite possibly there are other components of which I am personally unaware, however, those three sub-classifications, if correctly identified will provide you with all the profit you are likely to require.

jog on
d998

 

[Paulds11]

Profit taker... you mention some interesting concepts which seem to me to be rooted in Volatility trading but as a new guy to all this I cant reconcile some of your comments relating to who has the edge

Well in my opinion it is simple

1. News and similar timely fundamentals provide the edge in options trading dont they?

2. The quality of that news is also an edge as well as the qulity of information relating to buying and selling of any particular option... e.g. if you could gain an insight into who was buying what ealy enough (e.g. an insight into institutions buying) this surely would constitute an edge would it not? ( e.g.Heatseeker information provided by DrJ of Optionmonster.com) although of course one needs to be careful in interpreting that buy and sell information because of option buy strategies e.g. a straddle or strangle may provide the newbie with a false impression of the market. interest)

 

[CYOF]

E?d?g?e?

Quote:
Originally Posted by Profitaker
It is exaclty equal, evidently, because for every option seller there must be.....a buyer.


eh?

i'd rethink that one.
__________________
The difference between stupidity and genius is that genius has its limits.
- Albert Einstein
*******************************************************************************************

Profitaker,

As this thread is about THE EDGE, let us see if you know anything about what you speak:

1. For every OPTION BUYER there is a corresponding OPTION SELLER in the Market

True or False

2. Both will require the same level of RIGHTS in order to trade Options

True or False

3. Both will have the same EDGE

True or False

4. Both have a 50 / 50 chance of winning

True or False

5. If one loses on a trade, the exact amount he/she loses will go to the trader on the other side of the trade.

True or False

5 simple questions, as you seem to like simple questions, and 5 simple answers will do :idea:

Example:

1. = True

Edit: I will assist you here :idea:

All potential reward carries potential risk :idea:

To seek higher reward - one must be prepared and READY for higher risk :idea:

Higher risk - can be - and is - controllable :idea:

Those that are in the know = control :idea:

Those who are not in the know = no control :idea:

Control = Timing + Know :idea:

Timing + Know = Money in Account:idea:

Money in Account = EDGE :idea:

 

[Glenn]

Quote:
Originally Posted by Profitaker
It is exaclty equal, evidently, because for every option seller there must be.....a buyer.


eh?

i'd rethink that one.
__________________
The difference between stupidity and genius is that genius has its limits.
- Albert Einstein
*******************************************************************************************

Profitaker,

As this thread is about THE EDGE, let us see if you know anything about what you speak:

1. For every OPTION BUYER there is a corresponding OPTION SELLER in the Market

True or False

2. Both will require the same level of RIGHTS in order to trade Options

True or False

3. Both will have the same EDGE

True or False

4. Both have a 50 / 50 chance of winning

True or False

5. If one loses on a trade, the exact amount he/she loses will go to the trader on the other side of the trade.

True or False

5 simple questions, as you seem to like simple questions, and 5 simple answers will do :idea:

Example:

1. = True

Not wishing to interrupt your line of questions unecessarily, but in between the end buyer and writer can sit a market maker. When you place an order it is not with the opposite customer, it is with the market maker. An opposite customer may not be there at the time you place your order.
It is quite possible to press the market maker for better price than he is quoting on any partular trade. He decides whether he want the business or not. So long as he balances his books at the end of the day he is happy to take on your business, especially if you are doing any size.

e.g. Lets say the spread is 5 points as in May 6175 Puts at the moment. 92.5/97.5p.
If I wanted to write I could ring a broker and ask for something better than 92.5p from the MM and if he wants to he can let me have it. So let's say I get 94.p
Likewise a buyer may not want to pay 97.5p and may ask to see if he can get a better price. So maybe he gets 96p.

When I did the write, the MM was obliged to take my order. There was not necessarily a buyer waiting to take the other side of the trade. A buyer may come in later and the price may by then have moved and that buyer may get a good deal too. It is the MM who then has to make adjustments to attract business in a way which balances his books.

You are oversimplifying what goes on, as exemplified by the above.
Glenn

 

[SOCRATES]

Not wishing to interrupt your line of questions unecessarily, but in between the end buyer and writer can sit a market maker. When you place an order it is not with the opposite customer, it is with the market maker. An opposite customer may not be there at the time you place your order.
It is quite possible to press the market maker for better price than he is quoting on any partular trade. He decides whether he want the business or not. So long as he balances his books at the end of the day he is happy to take on your business, especially if you are doing any size.

e.g. Lets say the spread is 5 points as in May 6175 Puts at the moment. 92.5/97.5p.
If I wanted to write I could ring a broker and ask for something better than 92.5p from the MM and if he wants to he can let me have it. So let's say I get 94.p
Likewise a buyer may not want to pay 97.5p and may ask to see if he can get a better price. So maybe he gets 96p.

When I did the write, the MM was obliged to take my order. There was not necessarily a buyer waiting to take the other side of the trade. A buyer may come in later and the price may by then have moved and that buyer may get a good deal too. It is the MM who then has to make adjustments to attract business in a way which balances his books.

In my opinion you are oversimplifying what goes on.
Glenn

Yes, exactly but what you are expressing is an opinion, but an opinion.....is not a view.

 

[CYOF]

Yes, exactly but what you are expressing is an opinion, but an opinion.....is not a view.

That is a very good point Socrates, as an opinion is based on what one thinks, not on what one knows.

Am I correct in saying, that a view, can be explained as an account of the events based on a systematic survey of what one knows from experience?

There is a big difference here, of course, as all we seem to be getting is opinions, and no real views

Anyway, let us get the opinion of Profitaker - for this is his thread.

If he has me on ignore, which I doubt, can someone please tell him that we are all waiting for his opinion.

Slainte,

 

[CYOF]

Profitaker is the one who started this thread, and my question was posted for his answers to my five (5) questions.

Let him answer, please :idea:

 

[Paul71]

Use both writing puts and buying calls.

Writing generates cash for the calls.

Turbo charged dip buying in a bull market.

Simple or what. (no funny comments)

 

[Paul71]

An option WILL definately expire!

Everything else is based on IFs!

This is what gives the writer the edge.

 

[laptop1]

Yes, exactly but what you are expressing is an opinion, but an opinion.....is not a view.

SOCS

It does not mean your opioin is corret does in not!, Glen opinion could be correct is it not!

Your symbol Consume you it will.

 

[Profitaker]

.

 

[Glenn]

. Confusing consistency with edge.pdf

A triumph of substance over ignorance. Excellent post Profitaker.

"A little learning is a dangerous thing; drink deep, or taste not the Pierian spring: there shallow draughts intoxicate the brain, and drinking largely sobers us again."
First used by Alexander Pope (1688 - 1744) in An Essay on Criticism, 1709:

Glenn

 

[CYOF]

As some have said on this thread that Bulldozer was banned, and The Truth is now available for all, here it is.



And what the answer to my 5 simple questions - or are they too hard :?:

 

[Paul71]

.

Hello, PT.

I've got to admit it i don't like using the word 'edge', reminds me of one of those self motivation type DVDs you see advertised on tv.

Tony Robbins, i think?

'Get the Edge'.

I wonder if Tony, uses options?

What would he call his option trading DVD?...


'Write' Your Debt Away?

Let Your Worries Expire?

Selling! It's Money For Old Rope?

:cheesy: