Psychology... It has nothing to do with it. If you don't have real incentive then psychology. But if you know that you have an edge and well sized positions. Everyone will be willing to endure those drawdowns. Not because they are bold or courageous. But because if they stop right now, They simply break the rules. And make it collapse. It's true it's painful to take a loss for a newbie. But for the experienced trader. it's part of the game. After there is drawdowns and blow up (Unexpected Drawdowns). And drawdowns are relative. I tried a 10% winning strategy with 15 R:R. It wasn't profitable but at least I learnt that taking losses are part of the game. And I would recommand to everyone such an experiment. Either to fortify the heart. Or to open a new world for the strategist.
Hehe - Love this quote above - Yeah they are much more certain, so much more certain in fact that they pleaded guilty to insider trading. If the options are "priced correctly" relative to the stock and you buy them often enough (not big positions to blow your account) I suspect you will just end up with the typical stock market return. However the options spread is often large for smaller companies and as other have indicated its a difficult strategy for most peoples psychology.
Yeah in my experience traders who continually swing for the fence lose over time. Not referencing OP. The classic is a fast directional move that gets the losing traders juiced up. Meanwhile the pros take profits when the newbs react they get in while its quiet.
Of course buying the straddle is another strategy for a situation where there could be an explosive move. Not sure of the profitability of this strategy...would be interesting to see some backtested results. I would guess around a 30-40% win rate at best.
You are so right. The pain and joy of going long on options. In the interest of sharing experiences, been there done that.
. i actually like the idea of the Straddle, a little, although i admit i've never tried this one particular strategy [you aren't always going to lose 100% of your money with it] in the end - the best guesser wins, the most, i guess marc
Agreed, but only backtesting will indicate whether taking a directional approach or a hedged approach is more profitable in the long run.