hey spindro, decided to spend my Sunday reading through all the posts, so I started at the very end. Not too many remember 10/16/87. We didn't have computers we had something called Quotrons, and weren't sure they could handle 3 digits on the DOW. My best trade back then was long the FEB 270 OEX calls. Oh well, enough about memories, time to get on with the future, or at the very least the present.
Some Sundays you read posts backwards. Some weekdays, I trade backwards. Apart from essentially owning every stock on 10/19/87 that I sold/rolled naked puts on exp Friday (10/16), that week was chaotic. One position I had was CC's on Bear Stearns which expired a pt. or so ITM. My broker couldn't tell me for 8 days whether I still owned the position or it had been assigned. By the time the sorted out the post crash mess, I still owned BSC. It held up during the crash because there was some sort of partial tender/investment on the table from someone. Over the next week, BSC dropped 3+ pts ITM resulting in a loss. I threatened arbitration since if I had known that I still owned it, I could have taken action rather than unknowingly riding it down for a week. They eventually gave me an account credit for the difference b/t the crash Monday closing price (just below strike written) and the 8 days later price. The best trade I made then was getting a mint condition '84 Camaro for my wife
Buffet style, you mean buying enough shares to get on the board and run the company? Or do you mean bending GS over the table for 10% dividend paying issued-just-for-you preferred shares at the height of the financial crisis? Last I checked most people on this board don't have those investment options open to them. For options, my advice is read all of the option articles on investopedia.com, then Options as a Strategic Investment by McMillan, then Option Volatility and Pricing by Natenberg. Someone earlier said never sell naked puts, I disagree, for example selling naked puts in March 2009 would have been a great trade. The thing that gets people into trouble with options, in my opinion, is when they try to force a strategy onto a market that isn't right for it, doing things like selling condors every month to collect "income" regardless of the underlying market conditions. I find that you have to be very flexible with your approach and take what the market gives you, so to speak.
Don't listen to these guys on this board , just learn basics and start trading , buy calls or puts. Trade only SPY , its more than enough. Black Scoles formula is total BS , and you don't need greeks.
106 winning trades in a row just plugging numbers into BS box, but that was before 1987, hope things never change for you.
Warren Buffet is not rich from buy and hold investing, he buys actual businesses and runs them well (Geico, See's Candies, etc.). He then puts his billions into stocks and lets them ride. You get rich by starting or owning your business where you get 100% of the profits. If I had $10 billion I would also put a piece of that in Coke and McDonald's stock and let it sit for 10-20 years. So stop using Buffet as the poster boy for buy and hold. In my opinion he is proof that true wealth comes from owning a business and buying more businesses. And Buffet uses more derivatives than most countries.
Even Buffet uses options on occasion. They are a tool, nothing more. You might want to try the ThinkOrSwim platform as a learning tool. It's got some great visualization tools to help you get familiar with risk profiles, etc. You can also use their historical testing tool to jump back and test trade to see how various things would have worked. I think you can do all that on demo mode, but if not, you could certainly open an account with the bare minimum ($3500) and park it there as they don't have data fees, etc.
He is a buy and hold guy. He is known to buy businesses and let the current management continue running it themselves as they please. He only says what they do with their excess cash. That is one of the reasons so many company CEOs want to sell out to him. They get a cash payment and can continue to operate without any hassles of short term thinkers (like PE shops or public investors). But it doesn't matter. Not many of us have capital or time that we can invest in a stock and watch it do nothing for 10 years. And many of us can't (for whatever reason) sit out of the market for 10 years like he did in 60's or 70's (I don't remember when).
Natenberg's book, as is McMillans's, is a beautifully written book that can't be too highly recommended. There is however a slight error in Natenberg, but inconsequential for option traders. On page 70 of the 1988 edition, Natenberg writes in a discussion of the Normal Distribution, "Note that because a normal distribution curve is symmetrical, it allows for negative commodity prices. Is this realistic?" This trivial error arises because Natenberg first discusses price distributions (pg.66, Fig. 4-5) leaving the x-aixis unlabeled. Then labels the x-axes in the subsequent diagram (page 68) in terms of standard deviations from the mean. Both diagrams are correct, but the first results in the incorrect interpretation that there is something wrong with application of the Normal error curve to option pricing because it allows for negative commodity prices. The Normal Distribution does not require that prices be negative or imply that. The distribution is called the "Normal Distribution" not because it is commonly observed, but rather because the x-axis is "normalized" so that it is independent of the sign or magnitude of the actual values. The x-axis is always plotted as "normalized" values, rather than the values themselves -- the normalized values being stated as the number of standard deviations that a value lies from the mean. This has the benefit of making one function apply to all situations where the data (values) are distributed according to Gausses function. A secondary benefit of normalizing the x-axis values is that areas under the curve don't have to be recalculated for each situation. This is good because there is no closed form solution for areas under the Gauss function and they therefore have to be more tediously computed numerically. It is very convenient to have one table of areas under the curve apply to all applications. Normalization of the x-axis allows for this. Nevertheless, Natenberg's book is beautifully written and is highly recommended. A great read for anyone wanting to learn about options.
Personally, I think Natenberg is a horrible, totally outdated book. I have not read the McMillans book, but thumbing through it creates the same impression. This said, I do not think there is a good book on options that combines academic concepts and the general experience of being an options trader. For understanding volatility there is Volatility Trading, a relatively good book that is missing a lot of "meat" on how to trade vol, but for understanding the book-running, there is nothing out there thats worth reading. Just my 2bp.