What is the point in options?

[Martinghoul]

I use vanilla options, and usually into one direction only, ie. my hedging looks very much differrent from what others do:
I simply accumulate more at certain drawdown points 🙂,
and not neccessarily just the same one strike 🙂...
And sometimes I short a Put instead of buying a Call; it depends on the spread... 🙂 Ie. doing the unexpected... 🙂

But you're not even paper-trading, i.e. all these observations are related to completely fake prices, i.e. prices that the mkt never traded at? Moreover, it doesn't include any bid/offer, so how can you possibly provide any insight into options?

 

[Martinghoul]

That thread was more for comedy value though if memory serves.....

Well, my post in it was serious and I believe in what I said there regarding options... It might have deteriorated towards the end, true, although I stopped looking.

 

[traderum]

Here is a screenshot of the OptionTrader module in IB's TWS platform.
It should answer the recent questions asked here regarding Bid/Ask etc...

And commission is accounted for in the IB Demo. Normally it costs $0.70 per contract
(depends on how many one trades in total per month). It is sometimes even hefty
when one routes directly to CBOE etc. (then it costs $1.75).

And, for testing purposes one can even do without having any real options quotes. Here's the trick:
simply have periodically (or even in realtime) just the spot of the underlying stock available,
and then calculate the option premiums yourself by using the Black-Scholes formula... 🙂

And here are implementations of the Black-Scholes formula in about any programming language,
incl. Excel, VBA, Java, C++, and many more:
"Black-Scholes" in Multiple Languages: http://www.espenhaug.com/black_scholes.html

 

[traderum]

Re: Why options trading is better than trading the underlying stock

Yes.
That's theory. Reality will vary.
If you go at options with this logic, one of two things will happen:

1 - You will lose your account over time, a year at most.
2 - You will make a bunch, then lose your account. Because of the initial win, it might take a bit longer than a year. Might. Not likely, but anything is possible.

The risk in the above scenario is even lower with options than with the stock:
If the stock falls 5% then you lose 5k when trading the stock,
but you lose only 62% of the 5k with options, ie. only 3.1k .
(cf. the said table).

 

[Martinghoul]

Here is a screenshot of the OptionTrader module in IB's TWS platform.
It should answer the recent questions asked here regarding Bid/Ask etc...

I am referring to the fills you have posted in your other thread. You have been making money by trading in an imaginary mkt. For instance, on the 24th the AIG Jan10 33 puts never traded below $3.40. So how could it be that you bought so many below $3? The rest of your trades are similarly bogus. How could you possibly offer any meaningful insight into option trading, pray tell?

And, for testing purposes one can even do without having any real options quotes. Here's the trick:
simply have periodically (or even in realtime) just the spot of the underlying stock available,
and then calculate the option premiums yourself by using the Black-Scholes formula... 🙂

This is a very silly comment. Are you going to assume that the strike vol stays the same, regardless of what happens to the underlying? Otherwise, what do you intend to use for the B-S vol input?

 

[traderum]

To the info of others: I have this guy called Martinghoul in my ignore list for a while now, and he knows that,
so I'm not going to answer his idiotic replies. It's not worth to discuss anything with someone like him.

Suffice to say this: he refers to my journal http://www.trade2win.com/boards/tra...l-trader-um-aka-traderum-using-demo-acct.html
where I wrote this:

"The IB Demo is IMO very realistic and available 23.5 hours a day, 7 days a week,
ie. perfect for testing, even on weekends.
Only drawback of it is that the prices are with some unknown +/- offsets, but that's not that big a problem for testing purposes."

But this guy does not get it!

 

[Martinghoul]

To the info of others: I have this guy called Martinghoul in my ignore list for a while now, and he knows that,
so I'm not going to answer his idiotic replies. It's not worth to discuss anything with someone like him.

I actually had no idea that I was being ignored... What am I to do now? How will I survive such an insult?

In seriousness, I don't see anything idiotic about my replies. What is idiotic is claiming that you understand everything, including options trading, risk management, mkt participant behavior, etc, solely on the basis of imaginary trading using completely bogus prices (note this isn't even paper-trading, where at least you're interacting with an actual mkt). Your claims of making N% or $N or ideas of how to risk-manage options positions are stupid and arrogant beyond belief. If there's one thing I simply cannot stand, it's arrogance. This is precisely why you infuriate me so much, traderum, not because you're silly and childish and have no clue what you're talking about.

 

[Benton D Struckcheon]

I actually had no idea that I was being ignored... What am I to do now? How will I survive such an insult?

In seriousness, I don't see anything idiotic about my replies. What is idiotic is claiming that you understand everything, including options trading, risk management, mkt participant behavior, etc, solely on the basis of imaginary trading using completely bogus prices (note this isn't even paper-trading, where at least you're interacting with an actual mkt). Your claims of making N% or $N or ideas of how to risk-manage options positions are stupid and arrogant beyond belief. If there's one thing I simply cannot stand, it's arrogance. This is precisely why you infuriate me so much, traderum, not because you're silly and childish and have no clue what you're talking about.

Wow. I agree with all of this. Beyond that, I'm speechless.

 

[jerome681]

I don't see how someone can use a demo in options trading. There are so many variables involved. The bid/ask spread, delta, volatility, time decay, the strike and the most important in directional trading is the movement of the underlying security and one should be careful around earnings time due to volatilty crush. If you directional trade options it's best to trade liquid securitys and use a limit order. Many times the market maker will pick up your order at 0-.10 spread but if the underlying security doesn't move "you lose".

 

[traderum]

I don't see how someone can use a demo in options trading. There are so many variables involved. The bid/ask spread, delta, volatility, time decay, the strike and the most important in directional trading is the movement of the underlying security and one should be careful around earnings time due to volatilty crush. If you directional trade options it's best to trade liquid securitys and use a limit order. Many times the market maker will pick up your order at 0-.10 spread but if the underlying security doesn't move "you lose".

The IB Demo is very realistic. You even think it is real.
If you don't believe then try it out yourself. The software you can download from IB's website.

 

[GammaJammer]

There's an old market adage that I think Martin is alluding to here that I think is both suitably concise and eminently relevant, so I am going to post it here, with reference to his earlier comment re realistic trading prices.......

All together now (in an Essex Trader-monkey accent)


SCREENS....

DON'T.....

DEAL....

SHAIIIG

best wishes for a prosperous, non-imaginary 2010.

GJ

 

[oildaytrader]

The IB Demo is very realistic. You even think it is real.
If you don't believe then try it out yourself. The software you can download from IB's website.

I am not a friend of MartinGhoul.The I B demo looks realistic , in fact all demos look realistic,but it is nowhere near a real account .I have used it ,and can assure you , trading in live accounts will be very different.

Martinghoul is taking his valuable time to explain something that you do not understand.
I hope you will sincerely apologise to Martin , and learn from your mistake.We have carried out much testing between live and demo accounts.

http://www.trade2win.com/boards/general-trading-chat/43130-demo-account-vs-live-3.html#post1018622

O D T

 

[A Dashing Blade]

Re: Why options trading is better than trading the underlying stock

The risk in the above scenario is even lower with options than with the stock:
If the stock falls 5% then you lose 5k when trading the stock,
but you lose only 62% of the 5k with options, ie. only 3.1k .
(cf. the said table).

er . . . . wtf?
Delta remains constant as the underlying moves . . . . .I don't think so. 👎