Short-Term Reversion To The Mean Underway? [View article]
Great point Ken and this is inherent in credit spreads. YOU define your risk at the onset of the trade. Credit spreads are risk-defined. I think this is the concept that most self-directed investors who haven't much experience using Prob. OTM, ProbITM, ProbTouch and basic delta. This is what successful options professionals have used for 30+ years and continue to use to this day. With over 15 years of experience I can tell you firsthand probabilities work. It's not the end all, nothing is, but it gives you a leg up on the rest of the market because unlike equity markets, the options market is a two-sided market. I can be the seller to those who wish to buy speculative out-of-the-money plays. This is where the advantage lies and this is where I think most people have a difficult time understanding the process conceptually.
Stop Guessing And Learn The Statistical Way To Invest [View article]
You are exactly right, which is why I state repeatedly, and only use highly-liquid options. This is one of the most important aspects of options trading in general....only trade highly-liquid options. This is why I follow a list of 40+ highly liquid ETFs.
Your math is way off, so that should be ignored. However, again you are correct otherwise.
If you bring in say, $250 in premium, commissions will be roughly $12.50 to $15.00 per 10 contracts and in most cases because tey are out-of-the-money spreads you do not have to pay on the way out as most trades will be left to expire worthless thereby accepting the max gain on the trade. I hope this helps.
Stop Guessing And Learn The Statistical Way To Invest [View article]
Newalker, please before you make what I know are innocent, yet somewhat underhanded comments, do your research first. Actually take the time to learn about high-probability options strategies like selling out-of-the-money credit spreads. It's not a system, it's a strategy. I'm not touting a system and trying to inform others of a strategy. I am trying to make others aware of the strategies that professional options traders have been using for 30+ years. Again, please take the time to learn before you comment.
Some Investors Will Never Understand... And That's Okay [View article]
I am not sure if you have read my responses in full. Binomial models, probabilities, mean-reversion, std. deviation, Black-Scholes are all based on stats. Without actually trying to understand how probabilities relate to selling out-of-the-money credit spreads, or strangles, etc. it is silly for me to try to explain how they have been used by professional traders for years. I am not presenting anything new here. These are facts, not opinions. My hope is that investors are able to learn how valuable this type of investing/trading is and will shift, at least some of their focus to learning how to use it to their advantage. I know it is difficult for some investors to grasp, but their is a reason why your typical options seller (as stated by industry has an average liquid net worth of over 1 mil, and is highly educated. In fact, most of my clients are engineers. These people get it. So when a random investor claims that the strategies are for naught without some sort of factual info to back up his claim it can be frustrating. Because all I am trying to teach how to use credit spreads with a high-probability of success to the masses.
Stop Guessing And Learn The Statistical Way To Invest [View article]
Again, you are missing one important factor...you mention credit default swaps as your example as a high-probability trade. Credit default swaps were not liquid investments. If you are discussing high-probability trades you must only discuss trades that are highly-liquid. This is why I trade only highly-liquid ETFs such as IWM, SPY, QQQ, DIA, etc.
As for your housing example...what are the probabilties that you speak of...it sounds like more conjecture than hard stats. In fact, like in the tech boom and every other bubble, the probability or "pot odds" of a move lower in housing was high...due to mean-reversion. You must also understand the concept of duration to fully understand the concept. I would also argue that they are not the best and the brightest...just look at the latest "rogue trader" and his lack of knowledge when it came to the risk-associated with his billion dollar position.
I try not to make assumptions. Like all options professionals who sell premium to investors who wish to speculate on large moves occurring (selling out-of-the-money credit spreads) we use probabilities to our advantage. I can tell you firsthand this is how it's done.
As for teaching people to be naive, respectfully that is a ludicrous statement.I try to teach people how to use probabilities to their advantage. More importantly, I teach people how credit spreads are risk-defined at order entry. But the most important aspect and the one that you neglect to mention as to how all of these so-called geniuses lost all their money - is position-size. Position-size is the key to long-term success and it was inappropriate position-size and illiquid markets that led to the financial collapse, not the strategy employed.
Stop Guessing And Learn The Statistical Way To Invest [View article]
Respectfully, I have to say that I am not in agreement because most investors/traders choose to follow fundamental/technical analysis that truly has no bearing on the performance of a stock. I use probabilities for each and every one of my trades. Remember, I use only options strategies, more specifically out-of-the-money vertical put and call spreads. And I am selling them which allows me to choose my own "probability of success"...a term that I am not sure you are familiar with.
Probabilities calculates the likelihood of a future event occurring, given certain parameters like time and volatility.
Probability-based trading is self-adjusting for changes in volatility. We can apply options strategies that have known probabilities, adjusting for current implied volatility and duration.
As for the statistical method I promote...talk to any professional options trader...view sites like Tastytrade..read about out-of-the-money credit spreads. Over the past year I have a win ratio of 23 out of 25 winning trades when it comes to credit spreads on ETFs. I ma not making outlandish returns. My return of capital is roughly 12-15%, so for every ten contracts I trade I make anywhere from $200-$300. Trade $6000-$10000 and I am making roughly $1000 a cycle.
Call me crazy, but trading using probabilities is the wave of the future.
Fundamental analysis looks at sample of past financial metrics to see if the current values are high or low, and assumes stock prices will respond in predictable ways.
Technical analysis counts the number of times certain price behaviors have occurred in a sample of past data, and assumes future markets will exhibit that specific behavior.
Ask any successful professional options trader if they use fundamental analysis or technical analysis. The answer is in most cases none. I have several traders who have worked on the floor and work with several strategists who have been in this game for roughly 30 years. They are trying to sell books, they are just making steady income. It is my hope that I can teach a few self-directed investors the strategies I have used for years, because for the or the first time it is actually affordable for the self-directed investor to trade this way. Ten years ago commissions and other transaction costs (software, etc.) would have made it impossible for the self-directed investor to trade this way. Your not going to get rich trading this way. There are no claims of making 100%, 200% or 300%. Those types of gains are not sustainable over long-term.
Again, I would suggest rather than responding with your opinion to first do some legitimate research on the topic. As an analyst who worked for Oppenheimer I know your side and it doesn't work. Fundamental analysis and technical analysis don't give you an edge. It's just noise, an engagement tool for the masses. You truly need to learn about the industry itself to fully understand where I am coming from, coupled with an astute grasp of probabilities and how to use them with credit spreads.
Stop Guessing And Learn The Statistical Way To Invest [View article]
I would respectfully disagree. Have you traded credit spreads with a high-probability of success, aka out-of-the-money credit spreads? I have been doing this for well over a decade. And yes, I have a science background heavy on statistical analysis. Again, a lot of this is based on the Nobel-prize winning formula known as the Black-Scholes. Take a look at the Thinkorswim software as they offer probabilities at each strike based on the binomial model. Again, before attempting to discuss why this is not a viable strategy I would suggest doing your research. Respectfully, your reasoning is not correct. Actually look at the trades, look at the strategy, and more importantly look at the probabilities for each trade. By your response, I am not certain you actually understand how an out-of-the-money credit spread works.
Stop Guessing And Learn The Statistical Way To Invest [View article]
From a newbie's perspective I can understand where you are coming from. If you can create a large statistical advantage why would everyone not do it.
The fact is, every professional options traders use credit spreads. we are selling options to those in the marketplace who are speculators.
I would suggest that you read about probabilities of success. Start with articles from Tom Preston or Tom Sosnoff. I actually have quite a few on my site as well.
All of it is based on the Black-Scholes model and other binomial models, straight statistics, no guessing here.
IF after reading some articles on the statistical advantages of using out-of-the-money credit spreads please feel free to comment or email me and I would be more than happy to help you along.
However, before you make allegations do the research.
Stop Guessing And Learn The Statistical Way To Invest [View article]
Your max loss would be the difference between the strikes, in this case 2, minus the credit (premium) received.
Since we brought in $0.25 per contract, our max loss would be $1.75.
Many newbie traders have issue with the risk/reward, but they don't understand the concept of probabilities. You are essentially putting up a maintenance requirement of $1.75 to make $0.25 and the trade has an 85% chance of success. For a max loss to occur the underlying, in this case, SPY, would have to move through the $148 strike at expiration, which is currently 5% away. And if it does start moving in that direction we can always make adjustments, however, I am always a fan of keeping my position-size small and allowing the probabilities to work themselves out. It is rare to see a max loss on an 85% or higher credit spread. I hope this helps.
How To Choose Your Own Probability Of Success [View article]
Nice comment Pinot. I had no idea you knew me personally. As for comments on SA, I just don't have time to publish articles on SA as I am working on other endeavors based on my strategies.
By the way, I don't predict the future. I never claimed to. I make an assumption, but my assumption is always backed by a strategy with a high probability of success. I would suggest reading any of my articles on credit spreads, etc. or you could always go to Tom Sosnoff's website Tastytrade as they do a very good job speaking of similar strategies.
The Market Presents Another Short-Term Opportunity [View article]
Selling vertical spreads (much like I do in my Theta Driver options strategy) allows you (by creating a margin for error) to absorb those types of moves.
Short-Term Reversion To The Mean Underway? [View article]
Stop Guessing And Learn The Statistical Way To Invest [View article]
Your math is way off, so that should be ignored. However, again you are correct otherwise.
If you bring in say, $250 in premium, commissions will be roughly $12.50 to $15.00 per 10 contracts and in most cases because tey are out-of-the-money spreads you do not have to pay on the way out as most trades will be left to expire worthless thereby accepting the max gain on the trade. I hope this helps.
The Market Is At A Short-Term Pivotal Point [View article]
Stop Guessing And Learn The Statistical Way To Invest [View article]
Some Investors Will Never Understand... And That's Okay [View article]
Stop Guessing And Learn The Statistical Way To Invest [View article]
As for your housing example...what are the probabilties that you speak of...it sounds like more conjecture than hard stats. In fact, like in the tech boom and every other bubble, the probability or "pot odds" of a move lower in housing was high...due to mean-reversion.
You must also understand the concept of duration to fully understand the concept. I would also argue that they are not the best and the brightest...just look at the latest "rogue trader" and his lack of knowledge when it came to the risk-associated with his billion dollar position.
I try not to make assumptions. Like all options professionals who sell premium to investors who wish to speculate on large moves occurring (selling out-of-the-money credit spreads) we use probabilities to our advantage. I can tell you firsthand this is how it's done.
As for teaching people to be naive, respectfully that is a ludicrous statement.I try to teach people how to use probabilities to their advantage. More importantly, I teach people how credit spreads are risk-defined at order entry. But the most important aspect and the one that you neglect to mention as to how all of these so-called geniuses lost all their money - is position-size. Position-size is the key to long-term success and it was inappropriate position-size and illiquid markets that led to the financial collapse, not the strategy employed.
Stop Guessing And Learn The Statistical Way To Invest [View article]
Probabilities calculates the likelihood of a future event occurring, given certain parameters like time and volatility.
Probability-based trading is self-adjusting for changes in volatility. We can apply options strategies that have known probabilities, adjusting for current implied volatility and duration.
As for the statistical method I promote...talk to any professional options trader...view sites like Tastytrade..read about out-of-the-money credit spreads. Over the past year I have a win ratio of 23 out of 25 winning trades when it comes to credit spreads on ETFs. I ma not making outlandish returns. My return of capital is roughly 12-15%, so for every ten contracts I trade I make anywhere from $200-$300. Trade $6000-$10000 and I am making roughly $1000 a cycle.
Call me crazy, but trading using probabilities is the wave of the future.
Fundamental analysis looks at sample of past financial metrics to see if the current values are high or low, and assumes stock prices will respond in predictable ways.
Technical analysis counts the number of times certain price behaviors have occurred in a sample of past data, and assumes future markets will exhibit that specific behavior.
Ask any successful professional options trader if they use fundamental analysis or technical analysis. The answer is in most cases none. I have several traders who have worked on the floor and work with several strategists who have been in this game for roughly 30 years. They are trying to sell books, they are just making steady income. It is my hope that I can teach a few self-directed investors the strategies I have used for years, because for the or the first time it is actually affordable for the self-directed investor to trade this way. Ten years ago commissions and other transaction costs (software, etc.) would have made it impossible for the self-directed investor to trade this way. Your not going to get rich trading this way. There are no claims of making 100%, 200% or 300%. Those types of gains are not sustainable over long-term.
Again, I would suggest rather than responding with your opinion to first do some legitimate research on the topic. As an analyst who worked for Oppenheimer I know your side and it doesn't work. Fundamental analysis and technical analysis don't give you an edge. It's just noise, an engagement tool for the masses. You truly need to learn about the industry itself to fully understand where I am coming from, coupled with an astute grasp of probabilities and how to use them with credit spreads.
I hope this helps.
Stop Guessing And Learn The Statistical Way To Invest [View article]
You are making the assumption that a max loss would be taken on each losing trade.
Stop Guessing And Learn The Statistical Way To Invest [View article]
Stop Guessing And Learn The Statistical Way To Invest [View article]
The fact is, every professional options traders use credit spreads. we are selling options to those in the marketplace who are speculators.
I would suggest that you read about probabilities of success. Start with articles from Tom Preston or Tom Sosnoff. I actually have quite a few on my site as well.
All of it is based on the Black-Scholes model and other binomial models, straight statistics, no guessing here.
IF after reading some articles on the statistical advantages of using out-of-the-money credit spreads please feel free to comment or email me and I would be more than happy to help you along.
However, before you make allegations do the research.
Stop Guessing And Learn The Statistical Way To Invest [View article]
Since we brought in $0.25 per contract, our max loss would be $1.75.
Many newbie traders have issue with the risk/reward, but they don't understand the concept of probabilities. You are essentially putting up a maintenance requirement of $1.75 to make $0.25 and the trade has an 85% chance of success. For a max loss to occur the underlying, in this case, SPY, would have to move through the $148 strike at expiration, which is currently 5% away. And if it does start moving in that direction we can always make adjustments, however, I am always a fan of keeping my position-size small and allowing the probabilities to work themselves out. It is rare to see a max loss on an 85% or higher credit spread. I hope this helps.
How To Choose Your Own Probability Of Success [View article]
By the way, I don't predict the future. I never claimed to. I make an assumption, but my assumption is always backed by a strategy with a high probability of success. I would suggest reading any of my articles on credit spreads, etc. or you could always go to Tom Sosnoff's website Tastytrade as they do a very good job speaking of similar strategies.
Overview: On the Eve of Options Expiration [View article]
The Market Presents Another Short-Term Opportunity [View article]
My Favorite Options Strategies [View article]