Update on Kelly: When I started trading options back in 2013 and mechanically selling calls and puts, my win rate was in the 70-80% range. Recently win rate dropped to < 50% but Kelly improved.
Do you have any idea why your win rate dropped as a result? Less profitable trades or more losing trades?
Different trading strategies. If I sell OTM calls or puts, win rate could be in the 70-80% but the 20-30% losers significantly took away all the little profits I accumulated. If I sell DOTM calls or puts the win rate could be even higher but my occasional losers were huge. Other options strategies and management schemes lowered the win rate but the wins could be significantly more, better yet, losses could be smaller netting me positive expectancy. So for me win rate is an illusion, positive expectancy is what counts. Also, now I make sure my trade size is below my Kelly to avoid risk of ruin. Regards,
@ironchef thank you for your explanation about your change in trading strategies. I misunderstood your previous message as it gave me the impression that applying a Kelly risk approach suddenly made your win rate drop.
My layperson's understanding of Kelly is if you trade with Kelly and have infinite capital, you can maximize your return if your method has a positive expectancy. However, since most of us do not have infinite capital, trading with Kelly could lead to ruin so most prudent risk management advises to trade with fractional Kelly to reduce risk of ruin. Trading with Kelly won't affect win rate or expectancy probability.
more van tharp crap ok.. let's take a step back.. you know very little about real options trading..as..by your own car admission you do not use volatility analysis..or greeks analysis..so.. you are what is called a directional bias trader.. which is fine when everything is going the same way..but when the difficult decisions need to be made..look out i am saying it as it is..no nicey picey bullshit..you are having a lucky streak..which is fine..but unless you have a sound plan to deal with sudden changes that affect your profits..then you are not really trading..you are pissing about..and that is a dangerous game in the big bad world of financial trading!!!!
Your criticism is very valid sir and I know you mean well, thank you. There is no shame in admitting I don't know much and I am just having a few lucky breaks. I don't trade options the way most professionals trade because I am not that smart and knowledgeable. So, how should I study volatility and the greeks? I don't know fancy mathematics, don't have fancy programming or coding skill and can only calculate simple Black Scholes using Excel. Some said trading is like playing blackjack and poker. To win you have to know when to place big bets and when to fold. When I determined the odds are in my favor, I place big bets and when the odds are not in my favor, I learned to stay out. So far it worked but I know the clock will strike 12 sometime in the future. I study charts everyday, participate in forums like ET, ask a lot of questions, to the point many thought it was annoying that I ask so many stupid questions. Many answers were not real answers, some real answers were in poems and riddles which I found difficult to comprehend. But I learned enough from you all that I think I can avoid a huge drawdown or "risk of ruin". I appreciate you taking the time to set me straight. It will not be wasted I assure you. Regards,
it is very simple..be prepared..or accept the consequences..many years ago i was up a good bit of money..no losers for bout 6 months.. serious..then when the SHTF i was not prepared..needless to say i gave it all back..all i am saying is..fail to plan..plan will fail..simple
I was going to ask you who was van tharp, then I decided I should not be lazy so went ahead and consulted Dr. Google. After reading up on him in Wiki, I can see why you were giving me a hard time. No, I did not attend his class or institute, I did not even remember he was mentioned in The Market Wizards. Why do you think his stuff is crap? Should I buy his book/course to find out? Regards,