To make money, you need to good to predict the direction: 1) UP 2) Down 3) Side Way (revert to mean) Option trading work in the same way, the tricky part is that you need to know which way and when the market will go .. If you are good in this, you are millnionaire at least. No one even in GS can do this, so if you are good in this, you are sure one day you will be as rich as Buffet. Trying to use a complicated options strategies is PURELY negative expectancy game - consider the fees + slippage (the worst part in oprions). Those "neutral" strategies is for big boy that have some kind of special access to certain "things" that retail traders DON'T have.
Black Scholes will give you all the greeks you can want, but knowing them does not help you trade. I've never seen the technology to do this and properly research the process for optimal execution. In my opinion if you're doing things like that manually then it is only discretionary trading and without some results to determine your profitability I don't think too many of those people who might be able to teach you to trade vola really only have a feeling or gut reaction and if there's no systematic process or quantitative hard logic then there's not really anything but holding and hoping without some type of trading platform that will do this <b>automatically without discretion.</b>
It's not that I don't understand it but that I don't know any off the shelf technology that'll let you attempt to code these things into a backtestable platform. I've never seen it, and all I've seen is possibly some option pro platforms that could calculate IV or your delta hedge ratio and I know some will even keep your position at the right hedge ratio but that is the absolute limit to what I think can be done right now. Sure you can use Binomials or monte-carlo path dependent simulations but unless there's some data then testing just to prove where volatility might go to still won't tell you the direction you really need to be trying to catch. It's not so much I don't understand them, I've never seen any options strategy analysis performance summaries...ANYWHERE. This makes me believe that it really is as simple as getting a broker whose got the greeks and just trusting their calculations of IV, intrinsic value or implied volatility. As far as basing strategies around this you know the bottle top floating on the ocean is right on. And if your trades are lasting more than an hour there's definitely a lot of things that makes me say you will only want to use options to make directional bets or to hedge. If I'm not understanding greeks that's not it at all. I can calculate so many things with my BA-II TI that there's absolutely nothing quantitative out there that I couldn't master. So when it comes to these options traders on these forums starting discussions to ask somebody about screenshots of the smile or the wave nobody really knows what to say even when you do have an opinion about where the greeks might go I think you're still guessing without backtesting and without the backtesting there is zero chance you'll ever really know how much you're risking and if you don't have the time to learn how to program that well I don't think you should even trade (options) much longer without those analyses.
http://www.amazon.com/Art-Racing-Rain-Novel/dp/0061537969/ref=sr_1_1?ie=UTF8&qid=1320978843&sr=8-1 http://www.amazon.com/Boyd-Fighter-...=sr_1_1?s=books&ie=UTF8&qid=1320978875&sr=1-1 It's like Satchmo said about jazz: If you have to ask what jazz is, you'll never know. Ditto here. Or at least that's how I feel when I'm trading options. Knowing the math only gets you so far. Black-Scholes is a useful fiction. Mostly you see folks on here saying they get that feeling trading other things, but none of those other things, stocks, etfs, whatever, do that for me. With options, I get it. That's all.
bwolinsky re:"Black Scholes will give you all the greeks you can want, but knowing them does not help you trade. I've never seen the technology to do this and properly research the process for optimal execution. In my opinion if you're doing things like that manually then it is only discretionary trading and without some results to determine your profitability I don't think too many of those people who might be able to teach you to trade vola really only have a feeling or gut reaction and if there's no systematic process or quantitative hard logic then there's not really anything but holding and hoping without some type of trading platform that will do this automatically without discretion." as someone who's use of options is limited to perhaps married puts, and has never traded nondirectionally,your comments show that r-e-s-p-e-c-t-f-u-l-l-y you clearly don't understand the greeks, how their use contributes to the profitability of non directional trading or non directional trading itself. you clearly are living in some kind of "vacuum" considering that you are unaware of the many trading platform available(from TOS, Trade Monster, IB just to name some)or alternatively software such as OptionVue)used to support trading decisionmaking or what you call "discretion" I suggest that you refrain making any more comments about it as you clearly haven't studied the topic enough to offer any credible comments. there is a HUGE community of traders who do this trading EVERYDAY and several who have been successfull enough to be the subject of articles in SOM, Expiring Monthly etc. All of them learned this skill(whether as a former CBOE marketmaker, or taking classes, or 1 on 1 mentoring as is available out there),a skill that was originally taught to me, is and is being taught to many individuals, and is teachable to those who WISH to learn. I hope you are a better directional trader than a commentator about the subject of option trading
If I ask you to provide backtested performance results I'm sure you cannot provide them. The ROR is certain if you read some of my other threads.
Excellent thread. Finally someone says something. I never understood why someone would be so concerned about what crazy option strategy to employ when the majority of what's being done is pointless. There's a pre-requisite to options---->Having an edge in the market.