Do Option Sellers Have a Trading Edge?

+1

.... and now, why would that be true? Is the market chaotic or random?

 

This could partially be due to regulations since in my province, they definitely question you about your option understanding (as per the 4 levels) and early trades are reviewed. Even complex trades are reviewed. I have noticed that it has tightened up somewhat since 2008. Again brokers don't want lawsuits or unhappy customers per sec.

 

+1.

Figuring out when and why this changed is an important step in option trading abilities IMO. (LOL - THIS IS NOT A TEST!)

 

Interesting read: http://pchen.ccer.edu.cn/homepage/Major papers by Chenping/SNDE96p.PDF

IMO random walks are a joke. markets cycle and can often have fundamental, lasting changes (option pricing memory etc). Better to analyse markets from this perspective.

 

Another way of framing this topic is:

Can insurance risk ever be properly priced a priori in a competitive market? Or said another way, is there such a thing as fairly priced insurance in any market?

If that statement is true then it means that both sides are almost certainly wrong. One side will win which is a different thing altogether. The option market may be efficient but the true value is only known after expiration . The current price however is what ever our best guess is today. Tomorrow we may have a better guess. Try selling your valuable option, after expiry! Such is all trading.

 

Az di bobe volt gehat beytsim volt zi geven mayn zeyde.
If my grandmother had balls she would be my grandfather.
--Yiddish proverb

 

I have a feeling that you're gonna tell me... Besides, I wouldn't want to disappoint you with my "incorrect" answers.

 

LOL. (Hadn't heard that one.)

"I think that change comes about at the margins. I’ve always believed that. People in the center are not going to be the big change makers. You’ve got to put yourself at the margins and be willing to risk in order to make change."
—Frances Kissling

..... and there is that risk thing again!

 

A market can not function without differing opinions. Facts are tougher to come by in a quantum universe. Like a mad painter, some get the (model, language etc.) paint on their hands and become their paint. I just asked a question for thread readers to answer so I could learn. There are many intelligent people on this forum to help me learn. I agree with your comment. (hence +1)

 

Of course random walks are a joke. Read a non random walk down wall street by andrew Lo. I always believed the random walk thing was an interesting thought experiment but doesnt apply to real markets.