options . . . very hard to make money

Discussion in 'Options' started by billyjoerob, Aug 29, 2010.

  1. I've come to the conclusion that there are no retail options traders who consistently make money. The arguments for options make no sense. Hedging: the best form of hedge is going to cash. Leverage: I can get plenty of movement on my equity curve with margin alone, I don't need options to give me more anxiety. Non-directional, uncorrelated income: again, cash is non-directional and uncorrelated. Don't try to make trading more complicated.

    In addition, the bid ask on options is massive, I don't see any retail traders overcoming that hurdle.

    My point here is that options are a skimming operation, nobody makes money but the house . . .

    Exhibit a:

    This guy is very smart and knowledgeable about options . . .


    However his own funds performance (albeit with a short track record) is not as stellar. Kudos to the manager for being so transparent.


    Exhibit b:


    Back in the days of the 2003-2007 bull market, this guy got hundreds of comments per post, many of them by housewives. These days it's a bit more sedate at the Addict's site. No indications of a track record, but t-shirts are for sale.

    Exhibit c


    He regularly trades scores of put positions at a time, sometimes with 20% swings in his account, according to Tim himself. I really don't understand that sort of leverage, but he got bought out by Investools, so he can afford it.

    According to a recent post, "trying to make a buck over the past year has been the triple-diamond-black slope of trading history. It's been just miserable."

    So my point here is that there's no evidence any of these people are making money . . . and every reason to believe that they're not. Until I see evidence to the contrary, I will continue to believe that a) options attracts gamblers with huge appetite for leverage and b) in the long run, only the house wins.
  2. Good research. You list to some compelling examples of your point. However, bid-ask spreads aren't always prohibitively high, particularly when the underliers are highly liquid. Check out the bid-ask spread on the SPDRs, for example, or say, Citigroup (although there may be other reasons to steer clear of that underlier). Regarding leverage, I don't think options should be used for leverage, for some of the reasons you state. It's the volatility edge that intrigues me. As McMillan explains it, change in volatility is easier to predict than change in price. Trading price is a sucker's game where anything goes, whereas trading volatility has a basis in statistics. Sure, high IV can keep going higher, as we saw two years ago, but normally it stays within a set range. Over time, high-probability trades should result in above average returns, and volatility trading is one type of trading that can be done so that it is mathematically favorable and the planned outcome, somewhat more probable.
  3. dmo


    This is an excellent demonstration why all those ads and emails from those claiming they have a great trading system with which they've taught 91 year old grandmothers to make steady income trading options are all a bunch of crap.

    Yes, trading successfully is HARD! If you have guru-level knowledge of options - that just gets your foot in the door. Every day still brings a new challenge. And yes, it's harder today than it ever was.
  4. OK, this gets closer to the real difference between equity and options trading. You say that predicting volatility is easier than predicting price. I don't see why that's the case - volatility is a function of price, I don't see how predicting volatility is easier. Your explanation is that volatility is easier to predict because it's mean reverting ("normally stays within a set range"). One non-mean reverting blowup can incinerate years of steady profits. Who could have predicted the VIX would reach 80?
  5. BartS


    well I suggest that you stay away from options then - usually one gets what one believes in....

    Options are fantastic tools if used properly and if one understands the risks properly.I have seen people buying front month out of the money options and bitch because the price wasn't moving with the stock going up in price.....you kind of get what you ask for....lol

    If you can time stocks right and use the right options you'll make money.....percentage wise you'll blow stock returns out of the water....but since 90% have no idea....moot point
  6. There are many guys on here who are successful on the retail level. One guy I know from CT turned 6k into 200k in a couple of years. Anyone simply buying or selling atm calls/puts is going to have a hard time.
  7. It's possible to be very successful for a few years as a bull market, one-way trader . . . That's also true if you're using leverage.
  8. You do not have to be a gambler with a huge appetite for leverage.

    Do you avoid driving a car because a segment of the driving population tends to drive while intoxicated? These drivers place you at risk. You cannot avoid them. But when using options, you are in your own little world. You an avoid all those dangerous traders and develop your own good habits.

    You obviously want to learn how to use options without being so aggressive, without taking so much risk, and with a good probability of success.

    You must contribute to your own education - learn how options really work. Study and understand how at least one strategy works. Practice by paper trading until you understand how to trade the strategy.

    You must also get your emotions out of trading decisions - something that is going to be very difficult for you.

    Plenty of people earn a living from the options market. But it's not easy. No one is going to hand you the money. It's like any other job. You must perform well. You must become educated. You must know what you are doing. You must practice and practice some more.

    You also need an attitude reversal.

    Better results come with a better effort.


  9. "Plenty of people earn a living from the options market. But it's not easy."

    Really? Any names? "It's not easy" is a flaw, not a feature.
  10. The traders that know what they're doing choose options for the convexity that isn't offered elsewhere.
    #10     Aug 29, 2010