I think i understand what you said, haha, in either case, yes i did lose a hell of a lot to get to where i am at now, not saying its perfect but when combined with the right elements can yield preservation of capital and As far as the second part, assuming i also understood what you meant,, 90% of my times if not 99% of the time i bought options out of the money i lost, i in a way still sometimes shocked that options only 10 percent in the money sell for little extrinsic value, i often wonder who sells them and why, but i am sure there is a reason or a strategy on the other side of my bet, this saved me big time last two months with UPRO calls that i had in my IRA at 63. Although i had the balance to buy the whole shares, i did it through calls, Paid about 2 dollars per option on extrinsic, but boy, it was fucking worth it,,, i would've been down 4 times the losses had it not been in calls, before the drop, the rise up gave me just about the same delta, any ways had to get out of those leveraged etf after reading their math in depth
5 out of 6 is good odds,, hahaha, and in real roulette if you can get those odds you will make big money, dont forget its a pay out of 1 to 36
I'm basically saying that the 90% figure is usually a pretext by vendors to sell the uninitiated on the idea of "income trading" or "trading like a bookie", etc, etc. I've got a collection of books from over the years that are filled with this quote and sadly it never went away! My main point is that if you were to plot an individual strike over a defined time interval, even though it might eventually end at zero, it could go from 5 to 50 or 2 to 20 or make up any number before it eventually settles back at zero. Obviously, this could be an entirely new discussion, but that was the jist of post.
But if the 1 out of 6 is an extinction level event, it's terrible odds. Rickshaw Man would talk about 70% of the time markets rise in the overnight, except that when it isn't/wasn't on robo drift higher, it would/will wipe out months worth of gains in limit down moves. It's a tough game!
Ah, i see what you mean and agreed, i actually saw that this week several times in positions i hold,,, the reason i probably dont see it as often as you do or as you described is my positions are usually as long as a macd signal on daily chart which typically spans a month, i dont trade often, in the sense of placing trades, maybe 6 a week tops, any ways, i got into wfc 30 calls when it was around 26ish,,, and it went up to where i was up,, then down where all of a sudden i was down again, then the same thing repeated, the third time it was down i picked up more to average it out, and rolled most of it to may just today. Within what you said though i agree its where the money is to be made,,, yet that in itself is the whole equation, if you can time the market, then you figured out the best puzzle in the world, let aside time it with options, many times i had the position right but the timing wrong in an options sense, on to see the underlying go up or down after my positions expired, that ingrained in my the idea of not paying too much for time value to be able to stay with the position longer if i believe its still poised to the direction i anticipated in the first place
Pretty basic I suppose. If I win $5 (5 out of 6 times) and lose $50 on the 6th bet, then I've lost my shirt. Now this would typically apply to someone selling naked options or trading futures without a stop loss. On the other hand, if you are a buyer of options with a guaranteed stop out (price of the option), you could flip the script and lose 5 out of 6 times and make the $50 on the 6th bet.
In systems with a dumbell distribution,I have found the same thing you do.The trick is to find a syatem where you are either dead dead wrong or really right Whats interesting is when I first read your criteria of not paying more than 10% of spot price over intrinsic for a 90%/spot 2 month option,I thought that was really rich. As you know,that is apx equivalant to paying 10% of spot for the 90% spot 2 month put. Great post!!!