Success in trading stocks a prerequisite for success in trading options?

Discussion in 'Options' started by turkeyneck, Dec 8, 2010.

  1. I don't have experience with prop traders or hedge funds and I haven't traded condors enough to prove anything but I think you make lot of assumptions concluding that condors just don't work.

    - that not a single prop trader at your firm has been able to execute the strategy without blowing up eventually proves nothing. it's a finite sample and Being a prop trader doesn't mean advanced knowledge or experience or any guarante of success.

    - because guys like Dan Sheridan on seminar circuit won't go near it with their own money proves nothing.

    - that not a single hedge fund trade condors proves that it doesn't work is inconclusive. you know what all hedge funds trade? Any chance therre capable of trading more rewarding strategies?

    - that 10,000 plus hedge funds out there are spending a fortune on coding software and hiring 100 PhD's to come up with strategies when all they have to do is iron condors doesn't mean it doesn't work. Why chase small money )condors) if you can bang out HFT profits with risk measured in seconds? hedge funds chase bigger fish.

    and your conclusion that fair value, adjustments and positive expectancy are the tell all of profitability is also presumptuous. investing/trading is as much about market timing skills and money managment as executing the position.

    just because you can't or don't think that someone can make money with XYZ or that I could with what you think works is presumptuous. Your entitled to your opinion but that doesn't make it gospel.
     
    #21     Dec 10, 2010
  2. the answer can be plain simple:

    trade stock: you deal with "delta" only
    trade option: you deal with 3 more "greeks"


    so if you can't trade 1 greek, how can you handle 3 more greeks??? even if you neutralize "delta", you probably can't neutralize "gamma" & "theta" to trade "vega" exclusively. you can reduce them to a minimum but they are still there.

    and volatility won't change by itself. volatility changes often in response to price change. you may think you're trading volatility, you're also dealing with price change.
     
    #22     Dec 10, 2010
  3. Maverick74

    Maverick74

    Thank God you didn't actually read anything I said so I don't have to bother responding to this drivel in detail.
     
    #23     Dec 10, 2010
  4. Sounds like your pride has been slightly wounded. Who said Mav's opinion is gospel? It's a just a well considered opinion supported mostly with anecdotal evidence. But Mav's reasoning is sound IMO.
    If an IC could offer a 10% risk free annual return then the operator would truly be a master of the universe.
     
    #24     Dec 10, 2010
  5. drcha

    drcha

    I think everyone is basically right here. Can you make money with directional trades? Yes. With volatility trades? Yes.

    How? In both cases, you gotta guess something right. It is true that all options trades have approximately a zero expectation, ignoring commissions and slippage.

    No, one cannot just blindly put on condors continuously. If you're right 80% of the time, and your losers are 4 times the size of your winners, you are back at zero. Sure you can adjust, exit early, etc., but this just shifts the probabilities; by doing that you are cutting off both your losers and your winners. It comes down to guessing right about the direction of volatility and of skew--which is really just another kind of directional trade.

    Why do you need to pick stocks? You don't need to be able to pick stocks, because other people can pick them. I can't pick stocks worth a damn. I spent 10 years (1996 to 2006) trying to pick them myself, and made nothing at it. If you could not make money picking stocks in that time frame, you are a total moron at stock picking. But there are plenty of people out there who are pretty good stock pickers. All you have to do is follow one or more of these services--there are tons of them, and many are free. Or scout through what your favorite mutual fund or hedge fund has in their inventory. Look at the picks on S&P or Value Line. Read IBD. Or use some simple technical indicators. Even if all you do is stay out of the worst 3 or 4 sectors, that is a legitimate method. None of these methods are perfect, but any of them are a lot better than I am.
     
    #25     Dec 10, 2010
  6. sonoma

    sonoma

    Expressing market neutrality by simply putting on iron condors? Of course not, John. Who gives away money? But you know that trading into a position that is short centrally and long laterally with excess wingstrikes is a market neutral book that will make a solid p.a. return. Of course it needs to be traded, clipping risk here and there.
     
    #26     Dec 10, 2010
  7. Maverick74

    Maverick74

    Ahh, those are the words I wanted to hear "trading into a position". See, that is where you are going to lose 95% of these guys, on the trading part. And it was also the OP question and I thought I answered it, in my own snarky way of course. :)
     
    #27     Dec 11, 2010
  8. sonoma

    sonoma

    :eek:
     
    #28     Dec 11, 2010
  9. A fact, and a myth as well!

    "Prerequisite" probably is a proper word indeed!

    imo, trading ULs well does not guarantee a success at all in trading options.

    Trading options requires to acquire/develop further/incremental edge and a quite different mindset beyond simply trading ULs.

    If trading ULs can be easily transformed to trading options, I would guess many traders would have already used options for trading rather than still using ULs.
     
    #29     Dec 12, 2010
  10. sugar

    sugar

    The bottom line here is not what strategy is profitable, you can win (or lose) money with IC’s in the same way that you can do that trading futures, stocks or double diagonal ratio backspreads. The bottom line here is that you need a SYSTEM, a winning one that takes you over the market.

    Is buying IC’s (negative gamma) a trading system? No, It’s only an options strategy that need a trading system in order to turn it in a profitable one.

    The question that every trader must inquire himself is where is his trading edge.

    Briefly: no edge, no money.

    Regards.
     
    #30     Dec 12, 2010