There are many ways to make money… but personally, many of them don’t work for me. I lack the creativity, I lack the skills and I lack the ‘drive’ required to make any breakthrough. So, I’ve been grinding my days out as an accountant.
Being the accountant that I am/was, I calculated that it would take me well over thirty years to save a million dollars (the price of a decent house in Australia). And it did not sit well with me…
So during this period, I’d fantasise over business ideas and dabbled in stocks. I even paid just over a grand for a one year ‘stock’ tipping subscription, which at that point had companies in the midst of the subprime mortgage crisis on its recommended buy list… you get the drift?
A couple of years ago, it got to a point where I realised how you could be right about holding long stock, but never getting paid. At that point in time, I recalled a ridiculously expensive course that my brother had paid for where I got to tag along – mind you, it was 10 percent informational and 90 percent spruik for an even costlier VIP course that they had. Unbelievable these people! Nonetheless, it got searching in the right direction and two years ago is when I stumbled on Tastytrades.
Game changer. Life changer. I lack creativity, I lack skills but I know simple math and very basic probability! Perfect. Tastytrades had sold the concept of trading options to me.
What is an option?
• Right to buy or sell
• an underlying (futures, stocks, index)
• at a particular price
• by a certain date Why are options better than buying stocks?
• Possible to make money, regardless of direction
• Probability of profit given at point of entry
• Max Profit/Loss may be provided at order entry How do you make money?
• Theta decay – think about selling an insurance policy, as time elapses, the insurance policy is worth less.
• Volatility collapse – think about an insurance policy covering a Car in NY that was suddenly relocated to LA. LA is a lot safer right (let’s assume it is for this example), so the policy would be worth less.
• Hedge out directional risk (optional). So movements in the underlying do little to affect your portfolio. Zero Sum Game?
• You would think that if you were getting paid at fair price to take on a risk of 32%, that you would succeed 68% of the time… truth of the matter is, that you are actually getting closer to 80% probability of profit – if this was poker, you would ship all day! I don’t see why you shouldn’t with options.
Anyway, I honestly think that tastrytrade and dough is a ridiculously good resource. And, it’s free. Year to date, I’m making modest gains in my portfolio – and yes I understand it is not like poker where you can double, triple or quadruple your bankroll in a few weeks - but it is dam well better than the bank or any money managers out there who rely on a 'bull market'. And I feel that I’ve shortened the journey to one million to less than ten years.
I’d be keen and happy to discuss strategies/concepts etc. I’m also trying to increase my domain skills in Futures trading, but am finding it to be another steep but interesting learning curve. I hope that this has helped someone, good luck.
To be eligible, I think there is a minimum deposit of $3,000 into a trading account. Different platforms have different requirements.
Also, some countries will be eligible for signup to thinkorswim and some are not - personally I'm not eligible, but I can access U.S markets through alternative platforms.
Try watching a few beginner segments first, to understand how it works - like 'Where do I start'/'Back to Cool' etc and open up a papertrading account at the same time
to try mimic them. They also trade live, so watch one of their live shows and try mimic them on papertrade (if you are non u.s citizen, throw in fake details to get access).
But basic strategies are debit/credit call/put spreads and naked put and covered call. Those are good starting points. I might use this thread to explain/cover each strategy
with some examples.
Hey guys you are free not to listen to him, feel free to look up different brokers and what not - the internet is a great tool. Also dogmeat you can make the switch , just try learning basics and watching youtube videos. I am trying to let everyone know your skills in bw/poker can be translatable to trading, they do it South Korea for ex pro gamers - I read it years ago and companies did prefer BW/Poker pro gamers over others.
Also please hhse is trying to help, theres no catch brehs. Be thankful he set up his thread, this knowledge is painful and expensive trust me. Read up guys and lets get this thread rolling
Just read the first post and start the journey guys. As a collective the speed at which everyone learns will be exponentially faster, just like with how we learned how to play solid poker before. Other people will have to rely on themselves only which is really tougher and takes a lot longer. Good luck!!!
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handbanana21 United States. Sep 21 2015 23:59. Posts 3037
Game changer. Life changer. I lack creativity, I lack skills but I know simple math and very basic probability! Perfect. Tastytrades had sold the concept of trading options to me.
hey kevin. listen to him. I know you can do it, keep at it, sure it's definitely less fun I know, but build that knowledge now while youre still quite young and trust me you will be profitable there. I am a terrible trader but the way this year turned out since trading on and off losing money I robustoed everything and from all the losses I know i wont be making the same mistakes. the markets now in my country are terrible as well. Its a marathon bro and we poker players know this more than most people who actually make money doing this.
Just dont click links or go to brokers anybody recommends. Do your own due diligence guys. I know LPers are very cynical of everything and I am no different. Save money now from your poker winnings until such time you are ready to actually go into it when you feel you are ready.
Isn't option trading the hardest market and the one with biggest swings having only the top guys actually profit ( and they profit big )
Also what amount of money would be decent to start out with ? Like having a 10k bankroll seems small for such activity considering I doubt you can win more than 10-15% on top without taking huge risks - which would be laughable as 10k br in poker would mean you crush 100nl probably reg 200 and bumhunt 400 relatively speaking which would turn into much bigger profits than 1.5k
Last edit: 22/09/2015 01:02
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handbanana21 United States. Sep 22 2015 02:22. Posts 3037
On September 21 2015 23:09 whamm! wrote:
hey kevin. listen to him. I know you can do it, keep at it, sure it's definitely less fun I know, but build that knowledge now while youre still quite young and trust me you will be profitable there. I am a terrible trader but the way this year turned out since trading on and off losing money I robustoed everything and from all the losses I know i wont be making the same mistakes. the markets now in my country are terrible as well. Its a marathon bro and we poker players know this more than most people who actually make money doing this.
i highly recommend anyone actually considering trading options or god forbid signing up through that site to give this thread a read: http://forumserver.twoplustwo.com/30/...stions-about-options-trading-1429576/ (even if you're not and just happen to be passively interested in the stock market, it's an interesting thread)
a lot of you probably know who he is, but for those who don't: he was a successful poker player who went on to become derivatives trader at Morgan Stanley, and has recently co-founded his own hedge fund. he posts a lot in the thread, and there are other experienced traders who comment there as well.
On September 21 2015 23:40 Spitfiree wrote:
Isn't option trading the hardest market and the one with biggest swings having only the top guys actually profit ( and they profit big )
Also what amount of money would be decent to start out with ? Like having a 10k bankroll seems small for such activity considering I doubt you can win more than 10-15% on top without taking huge risks - which would be laughable as 10k br in poker would mean you crush 100nl probably reg 200 and bumhunt 400 relatively speaking which would turn into much bigger profits than 1.5k
We play poker an ultra high variance game, I think the best option in general for us is high-risk high-reward investment, thats what you are experienced in, let old couples invest in low variance crap
Sorry if I come across that way. Just thought I'd find people interested in derivatives trading as well. Tired of stock forums where there seems to be too much focus on Fundamental or Technical - not to say they aren't important...
I'm indifferent to platforms - I currently use etrade and interactive brokers. And I've never claimed that 'options trading' would bring excessive % returns. You actually have to be realistic and benchmark it against your alternative returns.
I'm not a 'star' poker player, so I need to benchmark it vs other things such as interest rate on my loans.
Until you've actually invested sometime into learning and understanding the domain, I don't think you should discount it. How often have you come across people telling you that poker is gambling, and that you can't make a living off it?
Poker is game of skills, emotions and probability... so is options.
Anyway, lets cover off on some basics (I don't profess to know everything - so feel free to correct me). Most people understand that you need to take risk to make money. The same thing holds true for Options. There are a number of risks that you can take to make money, but for this purpose, lets consider Delta, Theta & Vega.
Delta
It is hard to predict direction - the random walk theory. A stock can go up, a stock can go down and a stock can go sideways. Delta is the change in the option price at that instant for every dollar change in the underlying.
e.g If the delta on option XYZ at strike $30 is 0.50, then if XYZ stock went up to $31, then the option price on XYZ would move by $0.50. So in other words, your risk is driven by the directional movement of the underlying stock.
Theta
The longer the period till the options expiry date, the more the option is worth. As each day passes, the option is worth less and less - this is considered Theta Decay. Theta represents the decline in the options value as each day passes at that instant in time. Consider an insurance policy for 1 year vs an insurance policy for 6 months - as the cover period decreases, there is less risk and the policy is worth less.
Vega
The greater the expected move in the underlying the more expensive the option price. Consider the season... in regions where the weather is more volatile - tornado, flood, fire etc the higher the insurance cover will be vs a region which has predictable and calm weather.
How does this help me to make money?
You need to take on risk to make money. However, unlike in stock where 'Delta' Risk (directional risk) is the predominant driver in price, in options you can choose to minimise delta and take other risks to make money, such as Theta risk (time) and Vega risk (volatility). The theory says that the market is "efficient" and therefore everything should be zero sum game. But in reality, there are always irregularities. The purpose is not to pin point exactly when these occur, but to trade in the environment where these "irregularities" occur most.
Anyway, so if you wanted to 'minimise' directional risk - so rather than betting that a stock/index would go up or down, you can choose to bet a range. i.e I think stock XYZ at $30, will stay between $25-$35 for the next 45 days (so you would sell a combination of options to represent this). So as each day passes, the contract that you sell would be worth less and less, and you can then choose to buy it back at a lower price (cashing in the difference between what you sold it for, and what you bought it back for). In essence you are profiting from Theta Decay.
Lets consider another instance. It is chaotic, lets say the 'flash crash' that happened 24th Aug this year. Lets say that you were confident enough to bet that XYZ @ $30 would not be below $25 45 days later. Lets assume a few weeks later, the stock is still at $30 and now the market is all calm. In essence, volatility has decreased, so what you sold the contract for a few weeks ago is now considerably worth less (sure theta decay played a part) but also because volatility significantly decreased.
The theory is, that it can be better to take risk in 'Theta' (Time) and collapse in 'Vega' (volatility) while managing/minimising 'Delta' (directional) risk. Anyway, I'll leave this as a food for thought, and something you guys can research in your own time.
On September 22 2015 05:56 Baalim wrote:
The wording he uses is so scammy.: "I have no skills, no knowledge and Im a dumb housewife but I made 25,000 last month! click here!"
Just an observation not a judgement at all.
I remember back in 2007 when I was reading Rekrul posts about making thousands In online poker I thought it was some sort of scam lol
lol yeah it's tough to convince people esp LP bros. That's why I want to convince just one to take a look at trading. Just no forex that thing is death.
One guy here who beats 50nl now consistently checks this out and learns in 6 months the proper way, please come back here and give this thread a bump OK?
You are now probably thinking, right it is easier said than done.
Irregularities are impossible to identify... ?
Think about your poker stats tracker, where you have a small set of data that you refer to, things such as VPIP, preflop raise, cbet turn etc When anyone of these are too low OR too high you would adjust your strategy to exploit these flaws to increase your probability of profit but sure, you will get the suck outs here and there.
Same in options. There are basic things that you can look at such as underlying price (is it near highs, is it near lows), Volatility (is it too high, is it too low) in reference to say a period of 1 year period or you can get more complex and look at correlations between products such as Gold & Silver, Soy beans & Corn, Market Index & Bonds - if divergence/convergence is too narrow or wide, then you may choose to buy one & sell the other.
But there is always the chance of a suck out. So you trade small, but often. And you want to go into a trade with a higher probability of success, like it poker, how you'd want to go into a hand with playable/decent hole cards.
What is an example? - multiply dollar amounts by 100, as that is the amount of underlying you control for each option in the U.S market in most cases
Let's consider China stock market, represented by FXI (a tradeable ETF) in the U.S market. It's been as high as the $52.50 mark and in last few months has been driven down as low as $32.50 now currently at $36. Considering the yearly range, it is currently the 18 percentile of the trading range. At this point, you may decide, hey you want to trade it, because you think it as at the low end of its range, and you believe that it will go up.
How can you benefit?
- You can buy the ETF for $36, but you only have a 50/50 chance that the stock will go up and your maximum loss is $36 (if china's whole stock market goes bankrupt).
- You can cap your gain to $0.55 and sell a Put option with 38 days to expiry with a strike price of $32.50 with a 80% probability (meaning that as long as the stock is above $31.95, you will make a profit) and your maximum loss is $31.95 (if china's whole stock market goes bankrupt)
- You can pay $0.91 to buy a call option and hope that within the 38 days, the ETF will move above $38.41 with a 32% probability of profit (meaning that the stock will need to go above $38.41, and you will make a profit).
So what was the difference between the two trades? Stock
- Your break-even point is $36. The ETF must trade above $36 and you must close out position to make a gain
- 50% chance of winning
- capital intensive
- max loss $36
- max gain is unlimited (it might sound fantastic, but realistically ETFs don't just "sky rocket".
- holding period - unknown.
Sell Put Option
- Your break-even point is $31.95. You will make the full $0.55 if the stock stays above strike of $32.50, otherwise the $0.55 will slowly decline and get to zero at $31.95 (i.e stock can go up, sideways or down, just not past $31.95).
- 80% chance of wining
- leveraged
- max loss $31.95
- max gain is $0.55
- holding period 38 days.
Buy Call Option - A BIG NO NO, but only as an example - It is like playing a 72o and trying to flop a monster
- Your break-even point is $38.41. Stock must go up and past $38.41 before you start making money.
- $0.91 fixed premium cost to control 100 stock, if it goes above $37.50
- max loss of $0.91
- max gain is unlimited (it might sound fantastic, but realistically ETFs don't just "sky rocket", and it needs to trade above $38.41 before you start making money).
- you are racing against time, and all of the above needs to happen within 38 days or you lose money.
Sure there are other things that you will need to consider when entering trades such as Volatility, up coming dividends, binary events etc, but the above is only meant to give an an illustration.
And of course, there are many different strategies that you would use depending upon what you are trying to exploit.
Anyway, do your research and have a look into it, if it fascinates you people.
On September 23 2015 07:49 lucky331 wrote:
^ LP'er who beats 50nl consistently? That will only be one or two people.
lol
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Zalfor United States. Sep 23 2015 13:34. Posts 2236
I am sorry, but I cannot recommend this to anyone. Your own personal financial decisions are your own, but it is in my opinion that you should not trade options unless you really know what you are doing. It does not seem like you know what you are doing.
On September 23 2015 12:34 Zalfor wrote:
I am sorry, but I cannot recommend this to anyone. Your own personal financial decisions are your own, but it is in my opinion that you should not trade options unless you really know what you are doing. It does not seem like you know what you are doing.
Trading/Investing is very personal, much like Poker. Jealousy, greed, fear and despair is still there. I really don't know anything about options and nothing is ever easy otherwise everybody would be rich. For me Commodities in my small part of the world is easier to learn and I know people belonging to a wide range of industries. So far my worst trading habits was to trade so frequently and I now see it with my other trader friends. Patience, discipline is so vital and as long as your Bankroll is not wrecked so far down you will be ok.
Full Ring players who can fold kings preflop are great candidates, you people know who you are Nits who know when to be aggressive typically will find it easier to deal with trading stocks. They don't give too much premium to ego and are as patient and disciplined as monks.
On September 23 2015 12:48 Siz123 wrote:
Did u read about that " EX-TRADER" guy, who bought some hiv medicines.
And raised the cost price of those pills from 8 $ to 400+ $ .
Hope we won'te turn into such douches :D
What he did was buy the patent and he raised the price from 17.50$ per pill to 750$, because " the company wasn't profiting ". Sure I d get if someone created a HIV pills company that was working in loss, but I doubt it was that huge of a loss
Personally Poker was 100% money for me, I never enjoyed it but I loved the brotherhood and community that came with it. The game itself is fun but luck has so much to do with it. In trading, getting "lucky" can make you money to last a year, if you're smart, a set over set situation does not wipe you out, but if you've got a "lock" hand the rewards are ENDLESS. Poker does not give us that luxury, thus this is where the misery sets in.
I have lost more in a day in trading than I have in a months worth of Poker playing, but it's sooooo easy to recover psychologically because the things you learn from it keeps you from making the same terrible mistakes. You also have time to relax during weekends so even if you itched for a "weekend session" because all the fish are there, you can't do it. As I've said I'm a very undisciplined, weak minded person but I've handled trading surprisingly well, even in huge losses. I might lose money this year, I've gained 50% so far though but who knows right(I've lost -30% of my BR in june anyway)? I can be smart and keep the 50% or be greedy and go for the 400% or more- the freedom is like that, but I've become a better trader because of it adn when the markets turn around I'll be rewarded 100%. Learn to control entitlements with regards to paper losses, I never learned that in poker unlike most of you guys, but here it is so easy to accept.
Im turning 43 years old next year with a wife, 3 kids and my youngest has autism so its hard for me to balance everything, but im sure there's still time for me to make a good living out of this, im thinking you guys are probably averaging around 20s-to 30s, jesus christ time is so much on your side
On September 24 2015 06:38 Smuft wrote:
Whamm what do u think is the % chance ur just high on life for being up 50% this year and actually a negligible winner at trading?
this!
I am wondering as well. Looks like after NewbSaibot, everyone feels like risking big.
Your swings are too large Whamm, be careful. At the moment, my one max ~4-5% which is still too large also. Working on getting it down to 1-2% per trade.
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YoMeR United States. Sep 24 2015 08:18. Posts 12435
gambling in the stock market. let's place our bets.
On September 24 2015 06:38 Smuft wrote:
Whamm what do u think is the % chance ur just high on life for being up 50% this year and actually a negligible winner at trading?
this!
I am wondering as well. Looks like after NewbSaibot, everyone feels like risking big.
I think all of you being avid poker players should understand that trading isn't just like betting everything in roulette and let chance decide your fate. It's a zero sum game (imho), just like poker and it takes a certain strategy to "win" money consistently. What that strategy/style is would depend on what works for you. Again, very similar to poker in that sense.
I dabbled with it every now and then, and it's a good skill to try to learn and master.
I'll consider giving this a second thought again after someone explains thoroughly why it is they are able to make money trading the way they do. All i read is bla bla bla. Hooked on the forex scammy trading via technical analysis? good for you. There is no such thing as free money.
God have mercy on the soul who jumps in and tries to prove these disciples wrong. Thankfully time will do it for us. Please report back every quarter and let us know how you are doing.
Reference to similar threads - gold is a whopping 1153$ at the time of posting. bitcoins are 208$.
On September 24 2015 22:10 cariadon wrote:
I'll consider giving this a second thought again after someone explains thoroughly why it is they are able to make money trading the way they do. All i read is bla bla bla. Hooked on the forex scammy trading via technical analysis? good for you. There is no such thing as free money.
God have mercy on the soul who jumps in and tries to prove these disciples wrong. Thankfully time will do it for us. Please report back every quarter and let us know how you are doing.
Reference to similar threads - gold is a whopping 1153$ at the time of posting. bitcoins are 208$.
lol i understand your view, much respect as i know for a fact that you are finance and that is something I'd like to further strengthen as time goes by. ive got nothing but respect for someone who knows more than i do. i have not figured out a system to refute centuries of data. i might lose everything next week if the market crashes haha. i am though, looking at this in a different lens. the amount of times i will be right or wrong vs the amount of money i end up with at the end of the year will be the judge. i am simply trying to get the people who get it to take a look at it as there are a lot of extremely dedicated and highly intelligent people here than I. I'll post nothing but results next time if i do well still, no numbers no EV no math.
difference between poker and trading seems to be you can selectively choose your opponents in poker whereas you play against the prevailing market price in trading. you should assume the market is mostly efficient most of the time and generally better than you at pricing assets nearly always.
On September 25 2015 14:27 Romm3l wrote:
difference between poker and trading seems to be you can selectively choose your opponents in poker whereas you play against the prevailing market price in trading. you should assume the market is mostly efficient most of the time and generally better than you at pricing assets nearly always.
On September 25 2015 09:35 cariadon wrote:
Sorry, 209€ not dollars. Silly eu.
I hope you are not trading currencies whamm! It is the devil. Black hole. Can't beat it,
haha never. i know my limitations. BILAT told me before about forex and hes already warned me not to do it. I trust the guys advice obviously and especially seeing it is a 24/7 thing. I cant be looking at trends all the time, I cant help it.
On September 25 2015 14:27 Romm3l wrote:
difference between poker and trading seems to be you can selectively choose your opponents in poker whereas you play against the prevailing market price in trading. you should assume the market is mostly efficient most of the time and generally better than you at pricing assets nearly always.
What is this based on?
seems to me to be a safe and sensible assumption (esp for rando small retail traders) given how many active traders exist and how many of those have a long consistent track record of actually making money through the cycle. you disagree?
I disagree. The active traders with consistent track records of making money are not omnipotent. It is not like they have always existed and are gatekeepers to profitability or something. Taking positions worth 10k$ or 100k$ doesn't matter in the grand scheme of things. I believe it is possible to make money in the financial markets.
obv not omnipotent, but generally better than whamm and that other dood, why would you think its otherwise? also whats the martket share % of small traders whamm is trying to target with his sick reads?
hs poker players are not omnipotent also, but are way way better than some rando jumping into the game. the idea that you can just jump into trading and print money is ridiculous
The idea of having this dialogue is that for someone from LP it may prove to be a valid career option or a logical progression from poker.
Whamm! is all over the place. He just went off. Pressing submit post without any filters. What he has got right though is that it will take years to see results. Coupled with having a bigger sample of trades to minimize randomness, noise, luck.
I'd say that retail traders make up a marginal and negligible % of market share. Hedge funds manage tens of billions of dollars with <50 employees. A poker player trading with 100k is surely a drop in the ocean in the bigger stocks. Making money is hard but not because of the reasons stated: 1. others are better 2. they have a bigger bankroll 3. market is efficient to a degree it is unbeatable.
On September 26 2015 21:33 cariadon wrote:
I'd say that retail traders make up a marginal and negligible % of market share. Hedge funds manage tens of billions of dollars with <50 employees.
o_o, it is actually easier to make money on a smaller account - you can enter/exit trades easier with negligible impact to bid/ask.
Also, unlike large corporations with billions dollars under management (those who look after your 401K/Superannuation), you have more freedom in the products you invest in, the strategies you use etc. Whereas the large corpoations are almost always forced to bullish on the stock market, bonds & real estate 100% of the time.
And sure markets are efficient to an extent, but it's not perfect. It can be frustrating at first to understand the domain, but to assume that there is no 'opportunity' and to think that letting people manage your money is the best way to go... that is doing yourself a great disservice.
what I'm saying is that a lot of you are a whole lot smarter than I am. Just go read options or whatever. Keep an open mind IF you want to go into trading, if you keep remaining cynical then I'm sorry but nobody's going anywhere. Listen to HHSE and pick his thoughts as he verbalizes it better haha. Good luck guys and I hope you really do well. I am stock trading's diggerflopboat
Dogmeat, read the books I recommended as they also apply to options. They are quite popular books, and everyone who's made money in stocks has read it already. Don't listen to my crazy rants though, Im just trying to throw a ton of my random musings until I hit someone's thoughts
26th Jan was a binary event play (earnings announcement). Sold put options at strike $94 @ $1.13 in weekly options (i.e I'm betting that post earnings announcement, the stock will stay above $92.87. I bough contract back the following day for $0.71 cent. Pocketed $0.42 cents per contract. i.e 0.42 * 100 (one contract = 100 shares) * 5 = $210 less commissions.
The second one was a purely because I felt that Apple was trading close to its lower range and I believed that IV percentile was still decent, so I sold a put at strike $90 for $2.18 at monthly expiration date closest to 45 days (i.e I'm betting that the stock will stay above $87.82) . Bought it back for $1.34 per contract making $0.84 cents per contract i.e 0.84 * 100 * 5 = $420 less commissions.
Essentially, the above two trades make money in a few ways: Volatility collapse OR Theta Decay (the less time available on a contract, the cheaper it becomes). See graph below:
Ok, makes sense. I didn't get the quantity from your docs. I understand now. When you sell put options you are required to put up the money to cover right? 5x100x94=47k What happens when the price goes down a lot and you take a loss? If you don't have enough money on your account you get a haircut.
If you have a bunch of these cooking and trading futures aswell it implies a pretty big bankroll. Are you using leverage or are you staked/prop ? What do you consider the minimum bankroll to trade the way you did AAPL, selling options? I get it you can just buy call options or buy put options but that is a different thing.
Basically on your 45k in the second trade locked up for ~20 days you make 420$. In poker terms you play 100nl with 45k and make 4.2 buyins in 20 days. Why is this attractive for poker players?
What are some of the more interesting trades during this period excluding futures?
Second trade is 420$ / 20 = 21$ profit a day. 21$*365=7665 7665/45000*100=~17% ROI Is this a good trade or a very good trade? How many and how often do opportunities like this arise in your experience?
Poker players are familiar with variance, who is to say this is your real profitability. Maybe you are sun running? What about longterm, more data points. How many trades in that docs total?
Also please an example or two on a losing trade. How do you manage risk and when to take a loss. Buying back in underlying or closing postion via options? Is there a difference?
Bankroll management is very important. I am currently only employing ~20% of my available capital.
Let's say the stock fell to $80. I would take the long stock - which means I paid $92.87 per share. Having said that, if I bought the share, I would have paid $100, for a stock now worth $80. I would proceed to sell call options on the stock assigned to me to lower my cost basis.
The money to cover is about 20% of the value. i.e 94 * 5 * 100 * .2 = ~$9,400K (but I have portfolio margin, which makes it about 5K).
I only trade my personal savings (grind my days as an accountant).
I would trade only credit/debit spreads on a smaller account OR trade cheaper stocks, I would not trade AAPL the way I did unless you had >100K (on portfolio margin). i.e position size <5% of account.
You should never buy a call OR put by itself just to bet direction (you will be bleed money).
Credit/Debit call/put spreads on things like YHOO, FXI, EWZ would make sense on smaller accounts OR if you want to trade naked puts things like RSX, RIG, USO might make sense depending market conditions. I was trading a small account all of last year, only scaled up early January this year.
Be realistic with earnings % on capital. Bank roll required really depends on the brokers commission. If you are a U.S citizen or can get access to TDAmeritrade OR Interactive Brokers with margin (~$1.50 per contract with no minimum), you can start trading options with a capital as low as 3K (but stick to credit/debit spreads or puts on cheap liquid stocks), but if you are unlucky and can only get etrade (~$10 flat rate + 70 cents or so per contract), you really need a 20-30K account if you are going to practice good bankroll management - yeah it sucks.
On March 13 2016 11:31 cariadon wrote:
Basically on your 45k in the second trade locked up for ~20 days you make 420$. In poker terms you play 100nl with 45k and make 4.2 buyins in 20 days. Why is this attractive for poker players?
What are some of the more interesting trades during this period excluding futures?
5K locked up on portfolio margin account or 10K on normal account (first trade was an overnight trade, so 1 day). Yes 4.2 buyins on 100NL or 8.4 buyins on 50NL. But that trade takes less than 5-10 minutes to put on and off. I dont know how long it takes to make that 4.2 to 8.4 buy-in in poker /
On March 13 2016 11:40 cariadon wrote:
Second trade is 420$ / 20 = 21$ profit a day. 21$*365=7665 7665/45000*100=~17% ROI Is this a good trade or a very good trade? How many and how often do opportunities like this arise in your experience?
Poker players are familiar with variance, who is to say this is your real profitability. Maybe you are sun running? What about longterm, more data points. How many trades in that docs total?
Also please an example or two on a losing trade. How do you manage risk and when to take a loss. Buying back in underlying or closing postion via options? Is there a difference?
I would not call those good trades... only average. On average, you should be expecting to buy back what you sold out at 50% value at about 20 days. There is always opportunity... you would employ different strategies for different environments.
I was proving concept/practising on a much smaller account all of last year - full year was up 30% (and paid just as much in commission - I'm not u.s citizen and was stuck with etrade o_o... found loophole now using IB). About 200 completed trades (in & out) on that document.
The best way to manage risk is to trade small, and spread your capital over multiple products/positions. But yes there are many ways to defend a position, that will take a while to explain ... best to watch Good Trade Bad Trade on Tasty Trades as they provide a number of examples. But yes, I've taken losses (on the document). I'd guess 20-25% were losing positions, as that's the probability of success I choose when entering trades. Some I defended (by rolling down calls) Or selling calls on assigned stock, some I did not.
I don't believe I'm just on a 'heater', as I spent all over last year proving concept. But I'll update my results in another 2-3 months =).
Last edit: 13/03/2016 13:44
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JohnnyBologna United States. Mar 13 2016 21:57. Posts 1401
Whats your edge? So you sell 'enter xyz here' at bad rates to others less experienced?
Is the money coming from other everyday traders just as yourself or you betting against banks and other big companies? Or we just after the 'fish' who throw darts to choose stocks?
You sell a put for AAPL @ strike 94$. This means someone buys the option to sell AAPL shares in the future for the price of 94$. You make money from the options premium if the stock doesn't fall a lot below 94$ and the other party makes money when the stock falls considerably below 94$ or he protects his longterm stock position with the option of selling his shares at a price of 94$ if/when the stock falls considerably below 94$. It can be a good trade for both.
Your edge is timing your trade and understanding the fundamentals and/or news better. Who is stopping you from following Berkshire for example. It is public info what companies they are holding. It is hard to determine "fish" in the stockmarket. It is possible, however, to determine huge differences in a companies present valuation and its "true valuation (or fair valuation)" Some great companies are undervalued and some shit companies are overvalued.
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hiems United States. Mar 13 2016 23:54. Posts 2979
According to this guy efficient markets "simply isn't true" and I believe him (he has receipts to back it up).
I think it's possible someone that is smart, has good intuition, and puts in the work like hsfe is winning is legit imo but he probably worked really hard for it and it took alot of adrenaline, work etc.
I'd imagine stuff like AlphaGo, pokerbots, etc should be a reminder that advances in machine/deep learning is very big thing in current events. Funds like Renaissance I guess will get better / increase in quantity and probaby will make things tougher and markets more and more efficient so it's possible that he may have some edge now but just like poker / dfs everything else may have a limited shelf life.
I beat Loco!!! [img]https://i.imgur.com/wkwWj2d.png[/img]
On March 13 2016 20:57 JohnnyBologna wrote:
Whats your edge? So you sell 'enter xyz here' at bad rates to others less experienced?
Is the money coming from other everyday traders just as yourself or you betting against banks and other big companies? Or we just after the 'fish' who throw darts to choose stocks?
Johnny, you are thinking too deep. In liquid markets, it does not matter who the counter party is. It's not about "you" up against "X party". Market makers are paid by exchanges to make a market. And It's not always about "you lose" and "they gain". They have a big portfolio of products which we can't even imagine... and sometimes it not always about only entering winning trades, but more so about hedging risk or managing resources.
e.g For argument sake, lets assume that "selling puts" is a winning strategy.... then why on earth would you by a further out of the money put to create a credit put spread... but that's because you are managing your capital even though you know that buying puts in the long run is a loss.
Or Lets take an insurance company. Why on earth would you buy insurance, if you know in the long run, the insurance companies are making money?
Your edge, is your freedom... you are not tied by regulation, not limited to one direction, you have more freedom in being picky about your trades etc which large corporations don't necessarily have.
On March 14 2016 22:15 cariadon wrote:
There was a fund of mathematicians that went bust in glorious fashion aswell. Can't recall, i might look it up tomorrow.
Waiting Until You Are Right...
Markets move up and down ... now imagine constantly closing losing trades or riding winners and only closing them, once they become losers? Sounds crazy right... but it is not far from reality.
Here's an idea... how about waiting until you are right and taking your winners. But wait, that would mean that we 'would lose' substantially less and win more? .... <INSERT LIGHT BULB EMOTICON>
Waiting until you are right... How?
Whether it be with poker, or whether it be with investments, there have been times in the past where I've punched above my weight. As a result, due to unavoidable variance, I've been forced off tables or out of positions earlier than I wanted. I lost the opportunity to play with "fishier" people (mind you there weren't many people fisher than I) and I lost the opportunity to wait for winning trades. The right trading size is driven as much by bankroll as it is by emotions. Until you've ridden those high volatility/variance days do not assume that a sound bankroll, means a sound soul. Staying small and finding the right trading size will help you stay in positions longer and allow you to wait for winners...
We all know about the time value of money. Not all of us can afford the luxury of 'locking away' capital and waiting until we are right. We could be using the money instead, to pay down our mortgage, collect interest from bank or to make money or pay debt elsewhere. But the thing is, you don't need to 'lock away' your money for free in the markets. There are more strategies than buying or selling 'vanilla' futures or stocks. You can accompany these strategies with short premium in put/call options or options on futures and get paid to wait.
Markets move up and down... stay small ... get paid to wait ... and close winning trades. Simple concepts, but concepts some people choose to ignore.
Last edit: 17/03/2016 23:34
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Ryan Neilly United States. Mar 23 2016 19:45. Posts 1631
i have a buddy from vancouver whos made a million doing this, its his mainstay and he grinds poker @wsop in summers
I'm a first time investor and I was wondering if it is possible to determine the theta-decay of a stock based on real world events. What should I be looking for?
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shootair United States. May 18 2016 22:27. Posts 430
So I have some money I'd like to lose and never see again. This sounds like the place that could make this dream tru...The OP sounds like someone who has a past criminal record or other shady past and is now trying to start their next fail-proof venture.
On May 18 2016 21:27 shootair wrote:
So I have some money I'd like to lose and never see again. This sounds like the place that could make this dream tru...The OP sounds like someone who has a past criminal record or other shady past and is now trying to start their next fail-proof venture.
lol. I don't know how I can make the above happen, when I'm not selling any products or service.
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shootair United States. May 19 2016 18:03. Posts 430
On May 18 2016 21:27 shootair wrote:
So I have some money I'd like to lose and never see again. This sounds like the place that could make this dream tru...The OP sounds like someone who has a past criminal record or other shady past and is now trying to start their next fail-proof venture.
lol. I don't know how I can make the above happen, when I'm not selling any products or service.
Was just introducing resources that I thought was interesting and useful.
Degree in Accounting + CPA, worked in audit->management accounting-> commercial manager ... but irrelevant to investing.
About 3000 trades in options & futures year to date. Up just over 40% YTD on 6 figure account. On 2nd year of trading. 2 month in on sabbatical to focus on investing.
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shootair United States. May 19 2016 20:07. Posts 430
On May 19 2016 18:05 hhse wrote:
Was just introducing resources that I thought was interesting and useful.
Degree in Accounting + CPA, worked in audit->management accounting-> commercial manager ... but irrelevant to investing.
About 3000 trades in options & futures year to date. Up just over 40% YTD on 6 figure account. On 2nd year of trading. 2 month in on sabbatical to focus on investing.
lets us know when you're a millionaire
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Zalfor United States. May 26 2016 00:34. Posts 2236
reading this from the other side is incredibly funny. some of you present really good arguments about how to look at trading and how to look at returns.
leveraged trading is difficult and options even more so. the more complex the product the more complex the risk.
that being said, i definitely don't believe in efficient markets. the markets are made of people and while they are generally "efficient" on the whole there are usually a lot of opportunities available.
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K40Cheddar United States. May 30 2016 15:43. Posts 2202
I felt I should provide some insight in this thread given some of my experiences but perhaps I am setting myself up for troll bait. I figure I'll discuss some basics of the trading industry and then go into some basic options strategies that you might like depending on your goals.
I used to work for a market making firm on the exchange pits of the CBOE (Chicago Board Options Exchange) for about two years before ultimately deciding to pursue actuarial interests. As a market maker, it is your job to set bid/ask spreads, similar to how a casino sets a sports bet line. Market makers are legally required to set a bid/ask on any product that a customer is pursuing. A customer on the other hand, has the option to view all markets provided and select the desired choice, vs the market maker who must take the opposite side of the customer. Market makers tend to have a massive edge on customers in a highly volatile market place because they get to utilize the bid/ask for themselves and will out volume other traders while investors tend to have an edge in markets where one-way trading is occurring and have the advantage of selecting their investments. The downside of the customer is the brokerage fees will be massively higher on a percentage basis in the long run.
First and foremost, options trading is extremely risky and you very well need to know what you are doing before you jump in. I have witnessed guys who have had 7 figure incomes for 10 years and multi-million dollar homes completely blowout in year 11 because they took too much risk or were too stubborn to readjust their trading strategies. A lot of trading is mental and people that are weak in that department will have a very hard time making rational decisions and having appropriate discipline. With that being said, I do believe that options are an excellent way to produce an investment return if you are willing to put some time in to learn the intricacies of how they work. The advantage of being able to protect from both sides of a market is huge and while you may have to pay premiums upfront to purchase your options position it doesn't hurt to have a little insurance vs buying stock straight up.
Typically, the success/failure of a trader comes to adjusting to market conditions and minimizing potential risk. It is very easy to continuously pursue a strategy that works for years and be reluctant to change when market conditions start behaving adversely. The key thing is to go in with a plan and stick to it (I want to make X, I'm willing to risk up to Y). If you aren't sticking to your plan, refusing to back out when thing are going the wrong way, or trying to chase loses, you have officially turned yourself into a gambler.
From my experiences in trading, I would say people fall into these three categories...
The gambler/dickswinger - Not going to lie, I miss watching these guys behave in the exchange pits sometimes. If you fall in this category, you generally have so much money available you do not give an absolute fuck what you are doing. Most people that fall under this category make big bets with big money looking to absolutely kill the market. Clearly, I think all of you would understand this is probably the the most optimal long-run strategy. That being said, it only takes one sick bet that works to make tens of millions of dollars and sometimes these guys just run good and look like geniuses. If you got a lot of money that you don't really care about losing any of it, I think it's better for you to actually try this route rather than donking it off at a casino.
Advantage: You can make more money than anyone ever potentially
Disadvantage: You can lose more money than anyone ever potentially
The casual invester/trend follower - Typically, these people will be the average joe who reads up on a bit of financial news now and then is looking to try to make some smart investments for personal gain. In the exchange pits, these guys tend try to follow what everyone else is doing. You are typically "going with the flow". You actually can have some pretty decent success with this methodology. Your disadvantage would be that you never get in at the lowest/highest points ever because you are waiting for the trends to emerge. Most of these people will make small calculated trades based on some basic research but will typically not lay it all on the line.
Advantage: Can scalp profit potential with lower volume. Have full control over one's investment decision.
Disadvantage: Won't have the tools/technology to match professionals
The math dudes/nerds - People who fall under this category typically have designed or use an options pricing model based on the Black-Scholes formula or a modified variant of it (Basically it's a formula that prices options). Since all the prices of the options are seen in the marketplace, the model reverses the formula to solve for what is called "implied volatility" and adjust this value based on where the prices are in the marketplace. The idea is to know the theoretical price of every single option and to try buy below it or sell above it to collect theoretical edge. For the most part, this is used mainly by market makers but individuals who have access to something like this can also use it to help them with their trading decisions.
Advantage: You got the theoretical model for option prices, making it easier to target better potential opportunities. Typically can get higher volume in if used in a market maker setting.
Disadvantage: Models are not full-proof. When market conditions become a fuckfest you can throw your model out the window.
I think the most important thing if you are going into playing around with options is to ask yourself what your investment goals are and what you want to achieve. People want different things and you should approach this trying to accomplish what you are looking for while knowing the risks you are taking. You can trade options on individual stocks but I prefer options trading on an index like the S & P 500 (SPX,SPXW,SPY options) because an index that is comprised of multiple stocks has less directional risk on a given day than an individual stock. Here are some basic potential strategies you could look at depending on what you are trying to do.
Short-term massive gains - Take a look at options that have low expiration time (they will be cheaper) and high delta (more payoff on directional risk). You can consider buying straddles (put + call) as well. The goal is to maximize gain in a short period of time while not paying as much money upfront (a month out options cost way more than a week option).
Long-Term gains - Typically most people will look at options with a far out expiration so that there is a enough time the market may go into the preferred direction. The disadvantage from above is that you will have to pay more upfront to go long. I would suggest either looking at mutual funds or standard stock investments if you are looking at the long-term.
Small % gains/credit spreads - Here you are looking to make small gains with a large amount of money (Trying to use $10000 to make $100 for example). The easiest way to do this with options would be to sell out of the money spreads that have almost 99% chance of finishing out of the money. Since market makers are required to provide a bid/ask, you can typically find markets at .05/.20 on way out of the money spreads. The disadvantage is you have to hold up a lot of your money until expiration and if the market goes extremely adverse you might have to bail on a big loss. There is the advantage of being able to bail early though so you will never fully lose the max amount if you are disciplined (Like surrendering in blackjack). For the most part though it's a way to get some almost free money leveraging a lot of capital.
Hedging - Most day traders will trade this way. The idea is that when you buy a call/put you negate the delta risk by selling/buying the corresponding stock or a future. You basically create an artificial straddle without spending as much by buying a straddle directly. The goal is to set delta risk to 0 and then play with the other risks (gamma - movement, vega - volatility, theta - time decay). The disadvantage is it's complicated if you are just a basic options simpleton and requires a strong knowledge of options markets.
Entertainment/Creativity - The cool thing about options is you can make some whack weird ass spreads. If you are looking to just put on cool looking positions and see what happens, you can get pretty creative. I've used optionshouse before as a brokerage site and it's pretty simple to set up whatever you are theorizing about. This doesn't necessarily mean you'll have instant success but you could probably have some fun doing this.
Hope this was insightful for people. I kind of just slopped it together so maybe I've got some errors in here. Just want to reiterate that I'm just sharing my views and don't want to force anyone into this stuff. There definitely is potential for gain though I will tell you that.
TLDR cliff notes
-Options are risky and you should know what you are doing
-I feel options are a good way to approach making some money
-Your strategy should depend on your financial goals
-Have a good plan going in and stick to it
-Understand the risks you are willing to take
-Try it out, you might think it's cool
If you have personal questions you can PM me or post here. I am not a professional trader but I do have some industry experience that maybe I could provide insight on.
Nice post.There may be things that are slightly misleading.
Market makers also compete against other market makers for trades, and eventually a fair mid-point is arrived at with tiny spreads (liquid products). Retail traders should only stick to trading these products and not illiquid/low volume products that you alluded to. Market makers also receive commission from exchanges to facilitate trade, and market makers hedge these positions with other products - that is why they are paid. So it's not about the retail trader vs the market maker.
Yes, unfortunately they are real strategies that send a lot of retail traders broke.
- when you buy options (naked call, naked put, naked straddle, naked strangle), they are directional plays OR a race against time. Unless you are a 'technical' analysis guru or 'gambler' or want a 50/50 shot (debit spread), it would be a bad trade.
- everything is about risk/reward. If you are selling 99% probability OTM, you will struggle to make enough money to cover off on losses for a 'black swan' event.
Agree, options are cool, and you can vary the strategies to suit your risk profile. Hedging is only complicated if you don't have the appropriate platform that assists you - Think or Swim, Dough, Interactive brokers allow you to beta weight to index/ETF of your choice so it's easy - there may be others, just ask them.
Trade across non-correlated products (e.g commodity, money market, stocks, currencies,metals, energy), small positions, good risk/reward trades are good practices. People go broke because they trade too big relative to their account size.
Last edit: 30/05/2016 18:31
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K40Cheddar United States. May 30 2016 21:48. Posts 2202
On May 30 2016 17:14 hhse wrote:
Market makers also compete against other market makers for trades, and eventually a fair mid-point is arrived at with tiny spreads (liquid products). Retail traders should only stick to trading these products and not illiquid/low volume products that you alluded to. Market makers also receive commission from exchanges to facilitate trade, and market makers hedge these positions with other products - that is why they are paid. So it's not about the retail trader vs the market maker.
That is correct thank you for clarifying that point. I made it sound very market maker vs everyone else in my post which isn't necessarily the case.
As I mentioned earlier, at the rate I was going, I was never going to see a million dollars (not that it is a lot nowadays) until decades later. I got into options a couple of years back and made modest returns last year on a small 5 figure account.
I figured, heck, I've developed a relatively strong confidence level and was ready to scale up.
So earlier this year, I took profits on my cheap mortgaged investment property and amassed my savings from the last few years of working as accountant to fund my investment account. I managed to scale this up to a low-end 6 figure account. I resigned in March from work and by May, I managed to grow the account by 40% (already matching my yearly salary).
In June, I found myself short a bit too much bonds through brexit - a clear mistake (but not enough to kill me of course), so my account remained stagnant and I lost some of the earnings I made. July was intentionally quiet for me, as I did not want to carry positions while I was on my winter snowboard trip. Which takes me to now... currently up 60% and approaching 6 months post resignation.
I'm at the stage where I feel confident in trading a modest sized 6 figure account and am ready to scale up my account again. So I recently applied for full-time work, and in two-three months time, I'm hoping to take out an additional 6 figure loan and put that to work along with my current capital. I'm happy that I got this far and I feel like I've learned so much this past year.
If all goes to plan, I feel like I can reach my 1 million dollar mark (after paying back the loan, after paying tax) in no more than 4 years (being conservative on the returns). I just feel a lot happier now, as it no longer feels like a 30+ year quest.
Started working as a business analyst: 8:30am to 5pm with about 1hr15min commute each way - things are on track.
I sleep for a bit after work, then wake up to trade between 12:30am to 3:30am and then head back off to sleep for a couple of hours. Rinse repeat for the weekdays.
Sometimes, I do ask myself, is it worth it? I think it is... and I truly do believe that this lifestyle is only temporary until I've built up a solid capital base. I don't want to live out the rest of my life,
relying on 'government' benefits. And I want to buy shit, when I want, for who I want, and not worry too much about 'budgeting'.
Anyway, trading a larger account, year after year, after year, from <10K all the way to where I am now, has been emotional to say the least. It irritates me that non-traders think that if you are successful in trading a 10K account, then it is exactly the same as >300K account, because gains, losses and P&L swings are expressed in percentage terms and everything is all relative. I can assure you that when your account moves 5%+ against you on a 10K account over a few days, the same 5%+ on a 300K account can feel like eternity in hell (and not because your sizing or trade mechanics are wrong).
Having said that, when I am not phased, and simply get on with just repairing the situation, I know that it is a good indication that I'm ready to scale up my account even further. The original plan was for me to take out a loan from the bank,
but, I feel that having this looming debt & interest charge in the background may again, change how I trade. I don't want that, so I'm conflicted... anyway I'll think about it, and come to a conclusion in 2 months time.
I've included my progress report below. The graph was done a few weeks before the P&L snapshot from brokerage account. As you can see, I'm sitting about 2% below my peak. Having been through Brexit, with the blackswan move in Bonds that went against me; having been through the U.S election with abnormal unexpected moves; and the 28% drop in NG against me, and 20% CL move against me in past few weeks - I'm happy with my 78% return year to date.
Until next time.
Last edit: 21/11/2016 12:21
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hiems United States. Dec 11 2016 04:19. Posts 2979
bump
I beat Loco!!! [img]https://i.imgur.com/wkwWj2d.png[/img]
Nitewin United States. Dec 11 2016 15:56. Posts 1539
So you're selling an insurance policy that you win most of the time but on the improbable time that the insurance is triggered, you lose huge? Is this kind of like playing reverse tourneys in poker where you bet your friend a dollar he won't make final table in the tourney and you win 99% of the time but when he does, you lose 10,000?
I just want to jump in here and say that i personally know OP. He's not spruiking anything or trying to sell anything. He's verified his results to me, and he's quite knowledgeable on the subject. He is very open with how he has learnt and his motivation for doing so - if you guys are interested you can learn alot about how he trades. Obviously his methods aren't for everyone, but they are certainly working very well for him.
On December 11 2016 14:56 Nitewin wrote:
So you're selling an insurance policy that you win most of the time but on the improbable time that the insurance is triggered, you lose huge? Is this kind of like playing reverse tourneys in poker where you bet your friend a dollar he won't make final table in the tourney and you win 99% of the time but when he does, you lose 10,000?
No. 99% probability of success trades are poor in risk vs reward. I sell a lot closer at about 60-70% success range on average.
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YoMeR United States. Dec 13 2016 23:25. Posts 12435
cool posts. thx for the insight.
Maybe one day when i have more free capital to work with i'll start getting my feet wet with this stuff. It's always fascinated me.
Worked as an options trader at a prop shop for a couple years. What K40Cheddar says here is completely true: First and foremost, options trading is extremely risky and you very well need to know what you are doing before you jump in.
As a professional, the easy money came from everyone who thought they could beat the market. Before you jump in thinking "how hard could it be", the answer is VERY HARD. You have to have a strategy you have backtested a number of years, a system where you can execute your trades without missing or having much slippage, and you're paying WAY more than trading firms are in terms of trading costs. Just keep that in mind before you start trading.
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Nitewin United States. Dec 15 2016 17:38. Posts 1539
I made 40k today on options (but lost 60k 3 months ago) but my only strategy is to buy calls and buy puts, usually out of the money.
On December 15 2016 16:38 Nitewin wrote:
I made 40k today on options (but lost 60k 3 months ago) but my only strategy is to buy calls and buy puts, usually out of the money.
On December 15 2016 16:38 Nitewin wrote:
I made 40k today on options (but lost 60k 3 months ago) but my only strategy is to buy calls and buy puts, usually out of the money.
.
