We buy options , but the option formula pricing is innefficient.The option formula does not price in volatility of unexpected events examples of unexpected events 1)stock market bubble 2)chinese devaluation impact on stock market bubbles bursting 3)greek crisis /financial crisis /euro crisis 4)profit warnings 5) fraud by corporate companies 6) other unexpected events like war ,terrorism etc Option formula is a zero sum formula , neither has an edge i.e buyer seller .Both can lose. The option formula does not take account of 1)trends ........it assumes zero edge for trends 2)Support /resistance supports hold up very well in stockmarkets indices guaranteed by the fed put 3)advanced option trading with rollover and multiple exits and entries.Rollover adds 30 % to my strategy 4) individual skills if you buy options , at time of buying options these unexpected factors are not priced into the option price , option buyers gain when these unexpected events happen , as prices become extremely volatile and unpredictable. Additional edge to beat the option formula can be found in systems designed to beat the formula , example progressive betting formulas on the option pricing models or systems and combinations of unique option strategies designed to beat the option formula. http://www.investopedia.com/university/options-pricing/black-scholes-model.asp The model makes certain assumptions, including: The options are European and can only be exercised at expiration No dividends are paid out during the life of the option Efficient markets (i.e., market movements cannot be predicted) No commissions The risk-free rate and volatility of the underlying are known and constant Follows a lognormal distribution; that is, returns on the underlying are normally distributed. The formula, shown in Figure 4, takes the following variables into consideration: Current underlying price Options strike price Time until expiration, expressed as a percent of a year Implied volatility
Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected.” – George Soros.
Well there you go. You're using the wrong model. You should be using a Binomial model. To wit: Options Pricing Models http://people.stern.nyu.edu/adamodar/pdfiles/valn2ed/ch5.pdf A Comparison of Option Pricing Models http://www.finecus.com/docs/option.pdf I am the very model of a modern Major-General, I've information vegetable, animal, and mineral, I know the kings of England, and I quote the fights historical From Marathon to Waterloo, in order categorical; I'm very well acquainted, too, with matters mathematical, I understand equations, both the simple and quadratical, About binomial theorem I'm teeming with a lot o' news, With many cheerful facts about the square of the hypotenuse. Hey, if it was good enough for Gilbert and Sullivan then it's good enough for me. Best
The website he quoted also discussed the Cox-Rubenstein (or Cox-Ross-Rubenstein) binomial option pricing model. And since he said he dealt with European options they are the same.
I don't want to put words in his mouth but I think he said the pricing model, (B-S or binomial) did not price in tail events so there were opportunities to gain if you have some understanding/preparations. He also said that if you knew how to combine/manage different options, perhaps you could gain an edge. I think it is oversimplification but the general concepts made sense to me. Of course the devil is in the details. Trading Education Buyer, you gave me some food for thoughts. Thanks. And regards to both of you.
Gamblers would not know the difference , between gambling and horse betting.You are betting on the form of the trends.Pointless explaining to gamblers. You Might as well go to a casino , sit at the roulette table and call it day trading with the casino. http://www.thegoodgamblingguide.co.uk/betting/trends_in_betting_vs_betting_on_trends.htm
I guess as you are into psychology and reading quiet a lot about psychology and trading, you mistakenly used gambling for betting , or even shortened 'professional gambling'.