Options, imo, besides its hedging functinality can be used for trading in two main categories: Volitility trading, and Directional trading. In volitility trading, since sellers doesn't need an edge to win, that means options have provided sellers an edge, a natural one; while they concurrently provide a negative edge to buyers. In directional trading, options do not provide any edge to sellers; while they still provide a negative edge to buyers. That's why buyers find much much difficult for them to win in directional trading, as well as extremely slim chance to win in volitility trading. My 2 cents.
Of course , that's your edge, which is not provided by options. Selecting a stock to play a certain strategy may not be an edge, but determining timing of playing options with stocks (any one) is definitely an edge. Yes, you're right. I wrote the opposite of what I thought. Agree.
The elusive quest on ET to find a definition for edge! Just like asking a wymin's group to define Feminism, every one present will have a different definition! IMHO there is no inherent edge in buying or selling options unless you can achieve a lock, if the profit cannot be quarantined then you are not assured of anything. Everything else requires additional conditions to be achieved. Time as an edge - you've sold naked puts (lots of time) that are now in the money and continuing to increase in value, is time value still an edge? On the sell side time is potentially an advantage On the buy side leverage is potentially an advantage ( used correctly I would say an enormous advantage) Because nothing in the future is assured it is unrealistic to assume an advantage. Except in specific cases such as locks the only edge's to be found will be within yourself! Regards Johno
What natural edge is there in selling? Unless the option is mispriced then the premium you recieved in return for the risk is fair value and thus no edge.
As spindr0 wrote we can talk about this for a long time, however I specifically disagree with you when it comes to buying/selling options. If the SPY index is selling at $87 and I sell a 2-3 months OTM naked puts at $67 there is an edge. I will make a bit of money if the index: 1) goes higher 2) goes a bit lower 3) stays the same I lose if: 4) it goes down a lot at least more than $67 and last but not least there are also traders who sell cash secured puts and they will be OK with being assigned shares of SPY at $67 or less. Will it make money? No one knows what the market will do but 3 out of 4 cases the trade makes a bit of money. Also don't forget that if you do have a profit on the premium, say 50% you could close the trade sooner than the expiration date. If SPY goes down like crazy you still have the ability to get out at a loss by placing a GTC order since it is very liquid. I am not really saying to sell SPY puts, just trying to define what is an edge...a probability to make money that is higher than 50%, while you manage your risk. I have no idea how you can find an edge "within yourself" but if you can, great !
So is it safe to say - virtually anything that offers better than 50% chance of success would be considered an edge based on this post? As what you mention appears to be externalities similar to the ones I already mentioned? Regards Johno
Everyone is different. People might have a lot of different edges so there might be as many edges as people. But it is safe to say that having a high probability to make money and managing risk is a better edge then the edge "within yourself".
I tried to give a definition of what I consider an edge when dealing with options. The edge "within yourself" is actually what YOU wrote when you first replied to my post. I was hoping you could define that, I have no idea what you are talking about.
Quote from guy990opl: Everyone is different. People might have a lot of different edges so there might be as many edges as people. But it is safe to say that having a high probability to make money and managing risk is a better edge then the edge "within yourself". Please note I'm not trying to be confrontational, I'm just curious! Please read your comments, the first is directly above and then read your last post, far top and see if you can discover the inconsistancies! This was actually one of the points I was trying to make. How can someone say - " But it is safe to say that having a high probability to make money and managing risk is a better edge then the edge "within yourself".", whilst also acknowledging that they have absolutely no idea what I'm talking about when I refer to an " edge "within yourself". I would be interested to see your reply! Regards Johno