success rate for option traders?

I think that most who fail in trading options think they will win in the long term buy buying cheap options. Don't skimp on options that will expire next week (if need be buy LEAP options).

Also, options should only be used with the strongest signals (i.e. a few times a year).

 

I've fallen into the trap for the first paragraph. I find truth to that.

If 80% of all you trade is options like me, then you don't have much of a choice .

 

I think (equity) options are much worse than equities for blowing inexperienced people out quickly.

The reason is leverage, combined with many individuals' perception that options offer some sort of "magic", especially when using complex strategies as advocated by books, seminars, etc.

The high commissions/high spreads (AKA slippage, as mentioned above) don't help things. Combined with the "complex strategies" that require the use of 4 (or more?) options contracts, it only gets worse.

Finally, the following paragraph is purely opinion on my part: I think peoples' perception is that they can somehow outsmart the relatively simple and flawed (yet very effective) Black-Scholes model, which, albeit very imperfect, is actually a lot better a predictor of prices than those perceived prices that come out of the "models" in peoples' heads 95% of the time. The other 5% are largely scenarios in which there is a massive, fundamental event (e.g., bankruptcy) coming for a company that someone guesses at better than does the market. In such cases, options can be very effective, but again it seems to me to be a minority of the time.

 

Yes I trade options and have been doing so since 1977. I also spent more than 20 years as a CBOE market maker.

You can use any strategy that you believe is suitable at any given time. But, as SPINDR says, if you want to predict which way an option's price is going to move, you really must be skillful in predicting how the underlying stock or index moves. That means learning to trade equities before learning to trade options.

If you want to trade options <i>without</i> having a market opinion, you an dp that. But those strategies are best suited to traders who first get a firm grasp on how options work.

Mark
The Rookies Guide to Options
http://blog.mdwoptions.com/options_for_rookies/

 

This is what it all boils down to. By predicting what will happen in the future regarding the movement of the underlying, whether it be movement or non movement, options allow you to take full advantage of that. Even more so you can adjust your position not only on where the underlying may go but also lever yourself depending on how confident you are about your prediction. If you decided not to buy a stock because you didnt think it was going to advance much at all in the specified time period, an option player could profit from that non-movement.

 

hi there, i am an options seller year to date + 34 %

 

Just wanted to direct this question to dagnyt and guy990opl: How much of your strategy do you attribute to directional predictability? Without the benefit of options how do you see yourself?

 

I am going to cut and paste something, hope it helps you


" To succeed in the markets we must SURRENDER.

This concept demands nothing less than we approach the markets with ignorance and humility. Why ? Because markets keep changing. And only someone who approaches them with total ignorance can adapt to them. Oherwise we get caught defending some position or another:

“But it’s supposed to go this way.”

Surrendering to the markets means, in a sense giving up. It means giving up all of our cherished opinions, hopes, judgements and conclusions. JUST LET GO..."

JS

 

Just like in most business, most trades won't be successful. I don't think that the rate changes from one instrument to the next very much. The thing is that most people are not successful for themselves, and they are not successful for others either. In fact studies have shown that about 2/3 of hires are "mishires" and on average a mishire costs the business owner about 20 times the salary of the mishiree.

 

I use ZERO directional probability.
I trade market neutral strategies (mostly iron condors; but that changes as markeet conditions change.)

I will not trade without the benefit options.

Mark