Best Thread The Options edge (Writing Vs Buying)

[irishpaddypc]

You’re introducing strategy into the debate, nothing wrong with that, but hedging doesn’t improve edge, it reduces it.

Selling calls when long the underlying is the same as selling naked puts. In the example you give above it’s the same as selling a $10 strike Put, a DOTM option. Puts and Calls are fungible.

Correct. The value of early exercise is already priced into the options and is miniscule. It’s very rare for an American to be early exercised unless there is a dividend in play – and you should be able to see it coming anyway.

"You’re introducing strategy into the debate, nothing wrong with that, but hedging doesn’t improve edge, it reduces it."


O M Goodness, Your wrong again!! HEDGING increases edge!! IT DOES NOT reduce it!. It may reduce your profits but, it gives you peace of mind and guarantees profits!! :idea: http://www.investopedia.com/articles/basics/03/080103.asp

A trader that knows how/when to HEDGE a "SHORT STRANGLE" HAS THE EDGE OVER THE BUYER!

Paddy

 

[jezza888]

IrishpaddyPC,

Any chance of you actually putting some reasoning/information/discussion into all off your statements?

Its all well and good making your points but, there is little to be gained from posts stating if something is right or wrong one way or another without structure and reasons.

 

[irishpaddypc]

IrishpaddyPC,

Any chance of you actually putting some reasoning/information/discussion into all off your statements?

Its all well and good making your points but, there is little to be gained from posts stating if something is right or wrong one way or another without structure and reasons.

Thats exatly what I've been doing! [ Also read the links that i placed on this thread]

There is no better way to show right/wrong than doing what i've been suggesting all along with the bets of 2 to 1 and 3 to 1 by showing real time prices etc. But, no one seems to be bothered to take the challenge on![and be proved wrong] I like to prove things with facts and real time prices like some of the members suggested.

And please remember the topic of this thread! Its about who has the "EDGE" and its NOT about exotic options strats but purelly on "EDGE" FOR PLAIN VANNILLA SIMPLE OPTIONS!!

I'm NOT here to teach you about exotic trades or how to make profits or how to avoid being run over by a STEAM ROLLER! I'm here to simply make sure your NOT being fed false or untrue info on options! nothing more nothing less! and to prove it with FACTS etc if need be.

Who i am or what i look like or what country i live in or WHAT STRATS I USE or my body size or the color of my skin IS OF NO IMPORTANCE! What is important is that we stay on the topic of this thread! and that is;- Who has the "edge" the writer or the buyer.?

Paddy blue boy

 

[irishpaddypc]

Hedging explained: It gives you the added protection and therefore it adds the "edge" to your positions and protects profits if any. [url]http://www.investopedia.com/articles/basics/03/080103.asp

http://www.investopedia.com/articles/basics/03/080103.asp





Paddy

 

[jj90]

The problem with your rule 4 is that it's in direct violation of the rule 2 I stated. How do you propose win/loss ratio is more important than final P&L? Also, you haven't stated whether you are merely the counterparty to the buyer or an independent seller with your own trades.

 

[irishpaddypc]

Hi

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moment that you open these emails your computer will crash and you will
not be able to fix it! This e-mail is being distributed through
countries around the globe, but mainly in the US and Israel.

Don't be inconsiderate; send this warning to whomever you know.
If you get an email along the lines of "Osama Bin Laden Captured" or
"Osama Hanged" don't open the attachment.

Regards

Paddy

 

[irishpaddypc]

The problem with your rule 4 is that it's in direct violation of the rule 2 I stated. How do you propose win/loss ratio is more important than final P&L? Also, you haven't stated whether you are merely the counterparty to the buyer or an independent seller with your own trades.

JJ9,

With all respect. The whole dispute is NOT about % of profits.

The writer is on LIMITED GAIN WITH UNLIMITED LOSS STRATEGY! THE BUYER IS ON LIMITED LOSS WITH UNLIMITED GAIN STRATEGY! But, this is always in favour to the buyer on the % of profits! i'm not disputing this! But, this is another topic and has nothing to do with this topic on this thread.

This is about what is being said by Profitaker quote!! he says There is no advantage to either the seller or the buyer in options and that they are on equal par with each other in terms of success and that neither has the edge over the other. Plus he tells us that the writer will get wiped out with one losing trade and it will come within the 10th trade.

I know i can prove him wrong on BOTH points and that i can go MORE than 10 winning trades.
and NEVER get hit by the steam roller! why? cause i have the hedge and the edge at my disposal at any time i wish to use it.

The whole point in being a writer is to keep taking premium small or big chunks with many contracts. It does not matter the size of the profits in % terms! What really matters most is that you dont lose!

I'm happy to remove rule 4 [if you like] Just to prove the writer does not lose any trade and that the steam roller cant touch me and that the writer has the edge over the buyer. BTW, the buyer can be anybody also the MM! but i can tell you I'm not the buyer! I'm the seller ONLY.

I get to chose the underlying of my choice and profitaker gets the same choice in methods! He makes his own decisions that way NO ONE can say he was forced to make the wrong choice on strike or month or underlying etc. Just like when you go to a casino or bookie! You make your choice on what you want to place your bet on! The casino/bookies dont force you to bet or chose the bet for you either. Traded Options work in same principal! ie The house takes £10 in bets and can payout £10,000 for the £10 recieved!But at the end of the day the HOUSE WILL BEAT THE PLAYER! If they dont ? Las Vegas casinos would have been out of business long time ago!

Regards

Paddy

 

[Profitaker]

Plus he tells us that the writer will get wiped out with one losing trade and it will come within the 10th trade.

Don't they teach you how to read english at your school ?

Selling a DOTM 0.10 delta option 10 times will see you win 9 times and lose once. The 1 time you lose need only be a 2 sigma event to wipe out all your profits and then some.

The following is not for your benefit Paddyfool;

The delta is a good approximation of an option expiring ITM *. All ATM options have a delta of 0.50, meaning the option has a 50% probability of expiring ITM – logical if we think about it. The further we go OTM the lower the probability of the option expiring ITM – again quite logical. An option with a delta of 0.10 has a 10% probability of expiring ITM.

However, it is a statistical probability, and like all statistics you need to take a large sample to see the true picture. Just like we all know the odds of flipping a coin and landing tails is 50%, we also know we can flip tails 10 times consecutively.

Similarly, we could be lucky and sell 0.10 delta option 10 times and they could all expire OTM. Or we could be unlucky and sell 0.10 delta options 10 times and they all expire ITM. But over the long run, if we sell 0.10 delta options, 1 in 10 will expire ITM – it is a statistical fact that cannot be disputed. The 1 time you lose need only be a 2 sigma event to wipe out all your profits and then some.


* The delta N(d1) is actually the hedge ratio, but it’s close enough to be considered the probability of expiring ITM. The true probability is the N(d2) known, as the probability to be called.

 

[irishpaddypc]

Don't they teach you how to read english at your school ?


The following is not for your benefit Paddyfool;

The delta is a good approximation of an option expiring ITM *. All ATM options have a delta of 0.50, meaning the option has a 50% probability of expiring ITM – logical if we think about it. The further we go OTM the lower the probability of the option expiring ITM – again quite logical. An option with a delta of 0.10 has a 10% probability of expiring ITM.

However, it is a statistical probability, and like all statistics you need to take a large sample to see the true picture. Just like we all know the odds of flipping a coin and landing tails is 50%, we also know we can flip tails 10 times consecutively.

Similarly, we could be lucky and sell 0.10 delta option 10 times and they could all expire OTM. Or we could be unlucky and sell 0.10 delta options 10 times and they all expire ITM. But over the long run, if we sell 0.10 delta options, 1 in 10 will expire ITM – it is a statistical fact that cannot be disputed. The 1 time you lose need only be a 2 sigma event to wipe out all your profits and then some.


* The delta N(d1) is actually the hedge ratio, but it’s close enough to be considered the probability of expiring ITM. The true probability is the N(d2) known, as the probability to be called.

Mr Professor Profitaler,

Like you say I'm a fool. But, I'm happy to prove you wrong on your comments [2 sigma ] and also on the other point where you say there is no edge to the writer! DO YOU STILL MAINTAIN THEY ARE ON EQUAL PAR TO EACH OTHER?? Writer Vs Buyer. So, if i do 10 contracts every month on naked puts and i win against the other party [who holds the other end] does this not prove i have the edge?? Forget the 2 sigma [steam roller], thats my concern and not the buyers problem either!! perhaps you can start a thread on 2 sigma [steam roller] at a latter date? First deal with this issue!! Writers Vs Buyers.

Your obviously NOT an approve PUT writer! or top class advanced option trader cause if you were you would know that there is a way to hedge against SIGMA 2,3,4,5 OR SIGMA 6.

i ALSO THINK MOST VIEWERS WOULD LIKE TO SEE THE "FACTS" YOUR TALKING ABOUT?!
In the same way that i produced my facts [links] that the majority of contracts end up worthless!

Profitaker do you know why most contracts end up worthless?? You obviouslly dont know! cause if you did know you would'nt have those views that there is no edge between writer and buyers! Profitaker who has the edge at the casino/bookies? simple question as iI'm sure many of us would like your views on this matter!

Regards

Paddyfool

 

[irishpaddypc]

Profitaker,

I'm ready to open my first of ten writen trades and take premium from a buyer!.Close out at a profit.

Are you ready to open your first of ten trades buying premium?? Hoping /wishing you can close out at a profit too.

So that the experiment can comence!


I'm still waiting for you to accept my offer!!?? Are you NOT happy with 2 to 1 or do you want better odds?? or for FREE £$£$ if you so wish??

Offer is open to any person who holds same views as Mr Profitaker. And lets get the challenge started with or without the Professor Profitaker.

Garethb, jj9, silent trader, Jessa88, Jimbo 57, Mr Peto etc are you guys willing to put yourself forward for the challenge??

Paddy.

 

[irishpaddypc]

Or shall I start the challenge without any of you guys??!!

Paddy blue boy

 

[Profitaker]

Does anyone here trade exotics (Asian, Barrier, Chooser, Compound, etc), either outright or to hedge ?

 

[irishpaddypc]

Does anyone here trade exotics (Asian, Barrier, Chooser, Compound, etc), either outright or to hedge ?

Profitaker,

Hmmmm, i see your trying to switch the subject or are you just trying to move the goal posts? again.!?!

You've dug yourself into a deep hole! I suggest you stop digging and stop for a while and think how best to solve the situation! Continuing with your digging is not the answer my friend! you've got to face the situation head on! thats the only option left to you! theres no other way! and hidding is most deffinatly not the answer either.



Paddy blue boy

 

[irishpaddypc]

Profitaker my friend,

Or perhaps you can ask your mate Mate Mr Pitscum or GarethB to assist you with your delima? Just a thought.
Anything is worth a try would'nt you say? Or perhaps ask the moderator to help you get this thread blocked off? now that would help you out of your hole!

Mr Frugi, Mr Barjon please let this thread run. We are all intrigued how our friend Mr Profitaker is going to deal with this situation. This thread is about to get interesting folks! cause I'm soon about to put the TEN WINNING trades on this thread. But, first we need to give our friends more time to read their Option books and find a way out.

To the viewers,
Please be patient a little longer as all will be revealed and settled.

Paddy boy blue

 

[irishpaddypc]

WARNING MY 10 TRADES ARE FOR THE TOP CLASS ADVANCED and APPROVED OPTIONS TRADERS ONLY!!


Paddy boy blue

 

[benticat]

Hello,

since some weeks I`m reading this thread. I think neiter the sellers nor the buyers have an edge - like Profitaker it often stated. It's all about knowing how the volatility in the future will behave.
Making 10 or even more winning trades in a row is no problem in optionstrading. But sooner or later there will be the black swan if you are an optionseller.
@irishpaddypc
What do you do if the option you sold is going to be in or at the money? What are your follow up strategies?
Thanks a lot & good luck

 

[Profitaker]

Welcome to the thread benticat

It's all about knowing how the volatility in the future will behave.

Precisely. Anyone that doesn't understand this fundamental point shouldn't go anywhere near an option.

 

[irishpaddypc]

Hello,

since some weeks I`m reading this thread. I think neiter the sellers nor the buyers have an edge - like Profitaker it often stated. It's all about knowing how the volatility in the future will behave.
Making 10 or even more winning trades in a row is no problem in optionstrading. But sooner or later there will be the black swan if you are an optionseller.
@irishpaddypc
What do you do if the option you sold is going to be in or at the money? What are your follow up strategies?
Thanks a lot & good luck

Hello my new friend ,

And welcome to the Traded options world! and concrats on you FIRST post on T2W [ i notice you joined about 2 years ago]. Let me first tell you if you side with Mr Profitaker you would need to change your name to Mr Loser. Why? cause you would be in the majority and its ONLY the MINORITY that win in ALL derivatives trading!!

For me to tell you my secrets about how i deal with a black swan or STEAM ROLLER situations would be like me giving you my cheque book with many pagers signed to an account thats worth more than £1ml !

Or if you like my good friend Mr Benticat i could give you a deal which you WOULD HAVE TO REFUSE! and that is put £1,000 in cash to a charity and bring the reciept to me and i will show you my uncles options account and also show you the secrets of advanced options traders and how to deal with BLACK SWANS But, then we would need to put 2 bullets in your head!
Now you need to ask yourself do you need the deal or the secrets?

Paddy boy blue

 

[benticat]

@Profitaker
Hello


Hello my friend Irish,

yeah I joined long ago. Normally I`m not posting, just reading - shame on me!

Thanks for your offer but I do not need your advice how to deal with black swans cause my optionstrading style is designed to profit from these events! AND I never wrote that your trading style is wrong or that mine is better. Doubtless it's possible to make a good livin' by writing options. The follow up strategies are the important thing. Simple buying or writing will give nobody an edge.

Bye and good luck

 

[Profitaker]

.....black swans cause my optionstrading style is designed to profit from these events!

Nassim Taleb does the same. He runs a hedge fund whose basic strategy is to invest in government bonds and use the interest to buy DOTM options.

Interesting interview here;

http://www.wallstreetreporter.com/videos/Taleb.html