Watch HowardCohodas Trade Index Options Credit Spreads

[Hotch]

Nobody was saying it was proved that it was impossible though, which is what you were suggesting.

 

[MrGecko]

Off topic but you two should both watch this Video - and watch it on full screen so you can read the lyrics as it's going along.

 

[meanreversion]

Therefore, without a change in the use of options as a mechanism to reduce the current opportunity, I'm left with the somewhat uncomfortable conclusion that the opportunity is built into the system. However, it that were true, why are there relatively few of us practicing this technique?

Call me confused.

In reference to this post, your (uncomfortable) conclusion is that there is a little bit of mis-pricing.

Is this your edge? That you think maybe, possibly there might be something there, but you're not sure?

You are confused.

To make money, you either need to discover mis-pricing (e.g. in the early days of the options market, not everyone was aware of put call parity thus it was possible to arbitrage by selling expensive low delta options and buying cheap high delta options - but this was 30 years ago) OR you need a view and that view has to be right.

But what is your view?

 

[HowardCohodas]

Nobody was saying it was proved that it was impossible though, which is what you were suggesting.

If the core of your concern is that I extended the word proof to include "models in existence at the time," call me guilty. Otherwise we can start discussing how many angles can fit on the head of a pin.

 

[amit1986]

So the question becomes, can a significant change in the use of options cause the underlying instrument price volatility to change? I don't see how! I need wiser counsel here.

Howard, you cannot rule out the possibility. Whilst I understand why you would think that, you have to agree that there is a high correlation between price activity in the options market and the price activity in the underlying. Information discovery occurs in both markets and if either one instrument were to behave out of sync, then this would lead to arbitrage.

Consider the following example: if a trader has information regarding company XYZ (or even a strong opinion, if you want to assume efficient markets), then it would be more advantageous for the trader to trade the company's options instead of the stock because options require less money down. In this case, if there is strong buying interest in XYZ's call options on a particular day, then this would naturally increase the XYZ's stock volatility on that day as well.

No one is going to sit there and watch people bidding up call options on XYZ without it influencing XYZ's stock. Otherwise, there would be mispricing. Thus, significant changes in the use of options CAN cause the underlying instrument price volatility to change.

 

[meanreversion]

Or to put it more simply, when the end user purchases large amounts of call options, the seller needs to purchase the underlying stock in order to hedge their delta.

Where the options market can be inefficient is when different banks have different models to price the slightly less vanilla products, e.g. exotic options, but you can feel fairly safe in assuming the vanilla options market is efficient.

You can of course make money with options, but you need a VIEW - e.g. this stock is going higher, I'll buy a call, or implieds are too rich, I'll sell a 1mth straddle.

 

[HowardCohodas]

14 DEC 2010 Trading Summary

No activity

 

[HowardCohodas]

15 DEC 2010 Trading Plan

Opportunity
    Incomplete Iron Condors
        None
        
    Roll Candidates
        17.P - JAN 11  - PUT - SPX

    New Spreads
        None

Jeopardy
    Expiration - 1 day
        IC 6
        IC 8
        IC 12

 

[HowardCohodas]

Dashboard Version 3.0

Dashboard Version 3.0

There have been many requests, both privately and publicly to expand the dashboard with identification information to make it easier for readers to follow what I was doing without looking at multiple posts.

It also seemed to make sense to place the current dashboard image in the Trading Plan post instead of just referencing it. No extra resources are required as I host the image.

 

[arabianights]

have you had any requests to make the images not break the thread?

 

[robster970]

Howard - why don't you just expose the dashboard publicly and then publish the link/url?

 

[HowardCohodas]

have you had any requests to make the images not break the thread?

I'm trying to balance width and readability. Adding the Identification block adds significantly to the width. When I use the Dashboard on my smartphone, I turn the ID block off.

 

[HowardCohodas]

Howard - why don't you just expose the dashboard publicly and then publish the link/url?

I'd like to do that but my understanding is that it would violate forums rules because it is hosted on the website where I am planning to have my commercial interests.

 

[robster970]

I'd like to do that but my understanding is that it would violate forums rules because it is hosted on the website where I am planning to have my commercial interests.

Which forum - this forum?

​

 

[arabianights]

I'd like to do that but my understanding is that it would violate forums rules because it is hosted on the website where I am planning to have my commercial interests.

I don't think it would so long as they're distinct, could be wrong though

Edit: Can you PM me the link? I've had a wee look at your website but can't find it tehre.

 

[HowardCohodas]

which forum - this forum?

​

Trade2Win

 

[HowardCohodas]

I don't think it would so long as they're distinct, could be wrong though

Edit: Can you PM me the link? I've had a wee look at your website but can't find it tehre.

Like you, lots of people are smart enough to go to the root and they will find my commercial enterprise when I turn it on.

Give me a few days to finish debugging 3.0 and I will send you the link. One of the advantages of publishing a screen captured image is I get to hide bugs from everyone except myself.

 

[Martinghoul]

Wait, but still got nowhere with the identification of the "H'edge" (my clever abbreviation for Howard's Edge)? I fear I may have been barking up the wrong tree earlier with all my high-falutin' talk of skew etc. Is it true, Howard, that all you do is, basically, "credit spreads"?

 

[meanreversion]

That's Howard's Way!

I think he does have an edge, but it's not really a conventional trading edge.. more of a salesman's edge (this is definitely an edge worth having).

 

[HowardCohodas]

Wait, but still got nowhere with the identification of the "H'edge" (my clever abbreviation for Howard's Edge)? I fear I may have been barking up the wrong tree earlier with all my high-falutin' talk of skew etc. Is it true, Howard, that all you do is, basically, "credit spreads"?

In the account we are discussing, that's correct. All I do is credit spreads. Iron Condors are just icing on the cake, but managed as two separate credit spreads.

H'edge... I like it.