How Prudent Use Of IWM Can Make 10% Over The Next 43 Days [View article]
I think your response is short-sighted for several reasons.
You seem to ignore sound risk-management principles through the use of position-sizing, etc. Every professional options trader (and more and more retail options traders) are learning how to effectively use position-sizing to keep their risk-defined. A max loss would be highly unlikely given the large cushion provided by the spread.
This is a high-probability of success trade (over 90%) and yes you can lose a lot (not the $10,000 you quoted, but only $8,950 because you brought in $1,050 as a credit). But, what sound trader would allow themselves to take a full loss on the trade? Knowing the probability of the trade and the potential risk you can easily define your stop-loss on each and every credit spread trade, thereby not taking a max loss. Risk can be defined in various ways.
Options premiums are not set by "experts" they are based on implied volatility, among other factors, that the market creates, not some individual "options expert" that you mention. As IV rises, premium rise, this is not something decided upon by an "options expert" as you state.
Obviously, your knowledge of options is limited and that is okay. The options market is new to most people and often difficult to comprehend. Most base their strong opinions on truly limited knowledge, which only does a disservice to the options industry and those of us trying to bring the value of options to the forefront.
There are so many negative stereotypes attached to options and I understand why. The hype around outstanding gains and ridiculous claims exist everywhere. But, it is your job to try and learn how to effectively use options in a responsible and effective way. Do the math, learn about the statistical advantages of each and every trade, know how to use position-sizing to define risk, and the list goes on and on. I can promise if you do take the time to learn about options and how to use them responsibly you will be able to bring in income for a long period.
Unlike most options traders who look at the risk/reward of a trade and no other factors. It is this simplistic approach that again does a disservice to the the options industry and to investors in general. They read your fodder and take it as coming from a knowledgeable source. And that is extremely unfortunate, because options when used responsibly through sound strategies and risk-management are some of the most powerful investment tool that we have.
All I can say is that you have to do your due diligence. Additionally, look at the time frame of your investment. I am a short-term trader who takes advantage of short-term extremes in the market, you may opt for a different approach.
Short-Term, High-Probability Mean Reversion Indicator: Back in a Short-Term Neutral State [View article]
I actually use variety of indicators to make up my High-Probability, Mean-Reversion Indicator and then combine it with Wilder's RSI (2). Ancient, that is debatable. You can call it what you wish, but given that its use beats the market on an annual basis, I will continue to keep things as simple as possible. As a trader for over 10 years I have learned that the more simple the indicator the better. Furthermore, I have learned to trade High-Probability set-ups which means that I am not exposed to the market on a daily basis while I am waiting for a trigger to occur. Again, you can call it what you wish, but I would challenge you to outperform the performance from myself and others such as Vaughn Okumura who use High-Probability set-ups exclusively. Just curious, why criticize those who are trying to teach and help others learn how to trade effectively. Everyone has their own style. Yes, I could trade diagonal LEAP spreads or Iron Condors or another variation and I have. But again, over the years I have found that this is my bread and butter strategy and one that has given me the most success. Best of all, it is the most simple of all the strategies.
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]
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.
This is where I think you lack the basic understanding of my strategy. The HPMR strategy takes advantage of short-term extremes in the market. I am not attempting to call major moves in the market. I am just trying to beat the market. And so far, I have been very successful at doing so.
Also, you must have not read the above comment in full because the gentleman was trying to decide between two articles with opposing views. Isn't that what makes a market?
Short-Term, High-Probability Mean-Reversion Strategy: SPY Still Trading in a Tight Range Bound Fashion [View article]
Nickoo,
I am not betting against the current trend. If you read my daily articles (here or on my website) you will quickly realize that I am only trading short-term extremes in the market. Short-term being the key phrase. This has worked extremely well for me for years and should continue to do so with a disciplined, patient approach.
Will There Be a Short-Term Reprieve for the Market? [View article]
Cyrus,
If you read my article you will quickly discover that I am speaking of a short-term reprieve lasting 1-3 days. This is what my High Probability, Mean-Reversion indicator follows.
Short-Term, High-Probability, Mean-Reversion Indicator: USO Trade Monday? [View article]
Meltdown,
It should have stated short USO, XLE or DIA. Seeking Alpha has a new system for posting and I guess I am just getting used to it. I am sorry for the confusion. Kindest.
Short-Term, High-Probability Mean Reversion Indicator: Back in a Short-Term Neutral State [View article]
Those who teach should not be paid? So, professors or any trying to teach or assist others should do it for free and those who wish to learn are as you say "befuddled" or "timid". I can understand your concerns about advisors who claim unrealistic returns, but I am offering a strategy, just like all of the other successful strategies out there that offer people an alternative way to diversify their portfolios. Again, everyone has their own style. To generalize every investor/advisor/teacher as a group trying to take advantage of each is a little over the top. I think you sound a bit angry. I wish you good luck with your trading and like you, your activities hardly interfere with my trading efforts and proven track record. Kindest.
Short-Term, High-Probability Mean Reversion Indicator: Energy Very Overbought [View article]
Wow, Champ. You should probably do your research before you make such harsh allegations. The hard-working editors at Seeking Alpha try to get articles published as soon as possible, but if you went to my blog you would see that I posted this article the night before. For those of you who read my blog on a daily basis, I hope all of you have been able to take advantage of the short-term extremes that have been published this week. I hope that I can continue to bring all of you a resource that is part of your daily trading plan.
How Prudent Use Of IWM Can Make 10% Over The Next 43 Days [View article]
You seem to ignore sound risk-management principles through the use of position-sizing, etc. Every professional options trader (and more and more retail options traders) are learning how to effectively use position-sizing to keep their risk-defined. A max loss would be highly unlikely given the large cushion provided by the spread.
This is a high-probability of success trade (over 90%) and yes you can lose a lot (not the $10,000 you quoted, but only $8,950 because you brought in $1,050 as a credit). But, what sound trader would allow themselves to take a full loss on the trade? Knowing the probability of the trade and the potential risk you can easily define your stop-loss on each and every credit spread trade, thereby not taking a max loss. Risk can be defined in various ways.
Options premiums are not set by "experts" they are based on implied volatility, among other factors, that the market creates, not some individual "options expert" that you mention. As IV rises, premium rise, this is not something decided upon by an "options expert" as you state.
Obviously, your knowledge of options is limited and that is okay. The options market is new to most people and often difficult to comprehend. Most base their strong opinions on truly limited knowledge, which only does a disservice to the options industry and those of us trying to bring the value of options to the forefront.
There are so many negative stereotypes attached to options and I understand why. The hype around outstanding gains and ridiculous claims exist everywhere. But, it is your job to try and learn how to effectively use options in a responsible and effective way. Do the math, learn about the statistical advantages of each and every trade, know how to use position-sizing to define risk, and the list goes on and on. I can promise if you do take the time to learn about options and how to use them responsibly you will be able to bring in income for a long period.
Unlike most options traders who look at the risk/reward of a trade and no other factors. It is this simplistic approach that again does a disservice to the the options industry and to investors in general. They read your fodder and take it as coming from a knowledgeable source. And that is extremely unfortunate, because options when used responsibly through sound strategies and risk-management are some of the most powerful investment tool that we have.
Short-Term High-Probability, Mean-Reversion Indicator: Silver Hits Another Short-Term Extreme [View article]
Short-Term, High-Probability Mean-Reversion Indicator: Overbought and Ready [View article]
Short-Term, High-Probability Mean Reversion Indicator: Back in a Short-Term Neutral State [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]
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.
My Favorite Options Strategies [View article]
Short-Term High-Probability, Mean-Reversion Indicator: Silver Hits Another Short-Term Extreme [View article]
Also, you must have not read the above comment in full because the gentleman was trying to decide between two articles with opposing views. Isn't that what makes a market?
Anyway, thank you for your worlds of wisdom.
Short-Term, High-Probability Mean-Reversion Strategy: SPY Still Trading in a Tight Range Bound Fashion [View article]
I am not betting against the current trend. If you read my daily articles (here or on my website) you will quickly realize that I am only trading short-term extremes in the market. Short-term being the key phrase. This has worked extremely well for me for years and should continue to do so with a disciplined, patient approach.
Will There Be a Short-Term Reprieve for the Market? [View article]
If you read my article you will quickly discover that I am speaking of a short-term reprieve lasting 1-3 days. This is what my High Probability, Mean-Reversion indicator follows.
Will There Be a Short-Term Reprieve for the Market? [View article]
Short-Term, High-Probability, Mean-Reversion Indicator: USO Trade Monday? [View article]
It should have stated short USO, XLE or DIA. Seeking Alpha has a new system for posting and I guess I am just getting used to it. I am sorry for the confusion. Kindest.
Short-Term, High-Probability Mean Reversion Indicator: Back in a Short-Term Neutral State [View article]
Short-Term, High-Probability Mean Reversion Indicator: Energy Very Overbought [View article]
www.crowderoptions.com.../
Sorry, champ. Good try.