How much can I earn with Options? - futures io
futures io



How much can I earn with Options?


Discussion in Options

Updated
      Top Posters
    1. looks_one kevinkdog with 20 posts (29 thanks)
    2. looks_two blb014 with 14 posts (11 thanks)
    3. looks_3 wldman with 5 posts (19 thanks)
    4. looks_4 tpredictor with 5 posts (3 thanks)
      Best Posters
    1. looks_one wldman with 3.8 thanks per post
    2. looks_two PK 1 with 3 thanks per post
    3. looks_3 kevinkdog with 1.5 thanks per post
    4. looks_4 blb014 with 0.8 thanks per post
    1. trending_up 22,271 views
    2. thumb_up 117 thanks given
    3. group 18 followers
    1. forum 76 posts
    2. attach_file 0 attachments




Welcome to futures io: the largest futures trading community on the planet, with well over 125,000 members
  • Genuine reviews from real traders, not fake reviews from stealth vendors
  • Quality education from leading professional traders
  • We are a friendly, helpful, and positive community
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts
  • We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

(If you already have an account, login at the top of the page)

 
Search this Thread
 

How much can I earn with Options?

(login for full post details)
  #1 (permalink)
nicholassdyer
New York, United States
 
 
Posts: 7 since Jun 2017
Thanks: 0 given, 1 received

How much can I earn with Options?

Reply With Quote

Journal Challenge April 2021 results (now extended!):
Competing for $1800 in prizes from Jigsaw
looks_oneMaking a Living with the Microsby sstheo
(248 thanks from 25 posts)
looks_twoSalao's Journalby Salao
(60 thanks from 12 posts)
looks_3Deetee’s DAX Trading Journal (time based)by Deetee
(48 thanks from 18 posts)
looks_4Learning to Profit - A journey in algorithms and optionsby Syntax
(37 thanks from 15 posts)
looks_5Maybe a little bit different journalby Malykubo
(17 thanks from 16 posts)
 
Best Threads (Most Thanked)
in the last 7 days on futures io
The Crude Dude Oil Trading System
83 thanks
Big Mike in Ecuador
76 thanks
Help improve the FIO community
41 thanks
The New Micro Contract - MICRO BITCOIN coming May 2021
29 thanks
Webinar: Seven Trading Mistakes Solved With Smart Tradin …
26 thanks
 
(login for full post details)
  #3 (permalink)
 rleplae 
Gits (Hooglede) Belgium
 
Experience: Master
Platform: NinjaTrader, Proprietary,
Broker: Ninjabrokerage/IQfeed + Synthetic datafeed
Trading: 6A, 6B, 6C, 6E, 6J, 6S, ES, NQ, YM, AEX, CL, NG, ZB, ZN, ZC, ZS, GC
 
rleplae's Avatar
 
Posts: 2,991 since Sep 2013
Thanks: 2,437 given, 5,801 received



nicholassdyer View Post
How much can I earn with Options?

Difficult to give you a straight answer as it depends on :
  1. Capital you have
  2. Risk you are willing to take
  3. Market conditions

Follow me on Twitter Visit my futures io Trade Journal Reply With Quote
The following user says Thank You to rleplae for this post:
 
(login for full post details)
  #4 (permalink)
 xplorer 
Site Moderator
London UK
 
Experience: Beginner
Platform: CQG
Broker: S5
Trading: Futures
 
xplorer's Avatar
 
Posts: 5,350 since Sep 2015
Thanks: 13,486 given, 12,940 received


rleplae View Post
Difficult to give you a straight answer as it depends on :
  1. Capital you have
  2. Risk you are willing to take
  3. Market conditions

I second what rleplae said - I would also add 'experience' to the list.

Reply With Quote
 
(login for full post details)
  #5 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


nicholassdyer View Post
How much can I earn with Options?

It is probably less than you think, with a whole lot more risk than you think. Options (and any trading really) is very hard.

Follow me on Twitter Reply With Quote
The following 3 users say Thank You to kevinkdog for this post:
 
(login for full post details)
  #6 (permalink)
 myrrdin 
Market Wizard
Linz Austria
 
Experience: Advanced
Platform: Zaner360, TWS, Vantage
Broker: DeCarley, IAB, RJO
Trading: Commodities
 
Posts: 1,784 since Nov 2014
Thanks: 2,930 given, 2,419 received


nicholassdyer View Post
How much can I earn with Options?

Always remember:

You will compete against the best professional traders, having large experience and best possible education. They have all fundamental knowlegde available almost in real time, and can use the best computers.

Imagine any other profession you have not studied. Perhaps Medical Doctor or Rocket Scientist or Chemical Researcher. Would you feel to be ready to compete against the best of them in their field of expertise ?

I am always surprized how many people think they can make a lot of money in trading without being at the level of their competition.

Best regards, Myrrdin

Reply With Quote
The following 6 users say Thank You to myrrdin for this post:
 
(login for full post details)
  #7 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


myrrdin View Post
Always remember:

You will compete against the best professional traders, having large experience and best possible education. They have all fundamental knowlegde available almost in real time, and can use the best computers.

Imagine any other profession you have not studied. Perhaps Medical Doctor or Rocket Scientist or Chemical Researcher. Would you feel to be ready to compete against the best of them in their field of expertise ?

I am always surprized how many people think they can make a lot of money in trading without being at the level of their competition.

Best regards, Myrrdin


Sound and excellent advice.

I think people think it is easy because the barriers to entry are so low (if you have a pulse, you can open a trading account).

All the StockTwits and Twitter "trader porn" (cars, girls, etc) only amplifies it.

I go to Twitter sometimes, and I feel really stupid. Apparently all traders on Twitter are making huge bank, every day...

Follow me on Twitter Reply With Quote
The following 3 users say Thank You to kevinkdog for this post:
 
(login for full post details)
  #8 (permalink)
 Traderjohnsblog 
Tampa florida usa
 
Experience: Advanced
Platform: NT
Trading: CL
 
Posts: 62 since Jan 2017
Thanks: 5 given, 75 received

I actually started with options because I could not afford to buy enough stock to make it worthwhile. How much you can make is unlimited. People do make a good living from trading options. If you only got as far as a good six figure income life would be good.

Sent using the futures.io mobile app

Reply With Quote
 
(login for full post details)
  #9 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


Traderjohnsblog View Post
I actually started with options because I could not afford to buy enough stock to make it worthwhile. How much you can make is unlimited. People do make a good living from trading options. If you only got as far as a good six figure income life would be good.

Sent using the futures.io mobile app

Just curious - how many people do you know making a good living from trading options, and/or making a good six figure income from options trading? Then, what about the flip side - how many do you know who failed at options, and lost a bunch of money?

OP wants to know how much he can make, but it is important to show the reality - most people lose.

Follow me on Twitter Reply With Quote
The following 2 users say Thank You to kevinkdog for this post:
 
(login for full post details)
  #10 (permalink)
 Traderjohnsblog 
Tampa florida usa
 
Experience: Advanced
Platform: NT
Trading: CL
 
Posts: 62 since Jan 2017
Thanks: 5 given, 75 received


You make a good point. I am not sure how many lose money. A lot I am sure. My perception (obviously scewed) is from my own experience, friends and the people that I have trained.

Sent using the futures.io mobile app

Reply With Quote
The following user says Thank You to Traderjohnsblog for this post:
 
(login for full post details)
  #11 (permalink)
 NGtrader 
Vancouver, Canada
 
Experience: Advanced
Platform: Ninjatrader
Broker: Ninjatrader Continuum
Trading: RTY, ES, and Directional Options on QQQ, SPY, IWM, AMZN, AAPL, TSLA
 
Posts: 188 since Apr 2014
Thanks: 665 given, 148 received

By your question I can tell you are pretty new to this and that is not a criticism, it's ok.

From hard lessons I have made and lost a fortune on them. They are very nuanced instruments and you cannot just hold them as you do a stock or future. They are leveraged instruments and decay and volatility are important characteristics you must understand. If you just trade long put or long call you have very little margin to be right in terms of direction. Because they are leveraged, losses grow exponentially once the underlying goes against you. With income selling strategies you have more leeway but still you need to know advantages and disadvantages as well as understand the underlying asset.

I highly recommend virtual trading on CBOE's virtual trading page. It is free to register and you can trade both stock options and futures options on it.

https://www.cboe.com/trading-tools/virtual-trading-tools/virtual-trade

One thing beginners don't realize is that besides financial capital, psychological/emotional capital is a critical asset. If you take too many losses or take losses that are too big your psychological capital goes down exponentially. Some people never recover from that. I know people who finally gave up on trading.

So protect your psychological as well as financial capital by using that virtual trading tool and trading with appropriate risk for your account. If you are trading because you need to pay the rent, you have already lost because you will be too focused on outcome and not process. It's a cycle I see some of my friends in and they don't understand why they cannot solve the problems with their trading.

Don't try to hit home runs. Trading is a marathon and what you want is to consistently hit singles and to stay in the game for a long time.

Follow me on Twitter Reply With Quote
The following 7 users say Thank You to NGtrader for this post:
 
(login for full post details)
  #12 (permalink)
 blb014 
Dallas, Texas
 
Experience: Intermediate
Platform: TOS
Trading: AAPL, /ES, IWM, SPY Options
 
Posts: 330 since Oct 2012
Thanks: 554 given, 186 received


myrrdin View Post
Always remember:

You will compete against the best professional traders, having large experience and best possible education. They have all fundamental knowlegde available almost in real time, and can use the best computers.

Imagine any other profession you have not studied. Perhaps Medical Doctor or Rocket Scientist or Chemical Researcher. Would you feel to be ready to compete against the best of them in their field of expertise ?

I am always surprized how many people think they can make a lot of money in trading without being at the level of their competition.

Best regards, Myrrdin

Yeah that's not really how trading options works. It doesn't matter who is on the other side of the put or call if it is part of a long term plan. Don't fall into a mindset that someone or invest bank/HF is competing against you because that's just not the case for the majority of private investors/trader. They could care less.

Make a long term plan and use options as vehicle to help maximize returns. Keep it simple, such as just selling puts on equities that you want to own or if trade ES/ options make sure that fits into your view of the overall market .

Day trading options is a recipe for disaster, you might as well go to casino and have some fun gambling. Same way with day trading futures in my opinion. I have found that 25-60 days as the sweet spot for most options I trade and the trades I do take fit into my overall view of the market

Btw trading illiquid options, being overleveraged (Ron99) or controlling most of the contracts at a certain strike price is the fastest way to lose you money. Don't believe everything you read on some of these threads. A lot good advice on here and good site to learn.

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
Reply With Quote
The following 4 users say Thank You to blb014 for this post:
 
(login for full post details)
  #13 (permalink)
 blb014 
Dallas, Texas
 
Experience: Intermediate
Platform: TOS
Trading: AAPL, /ES, IWM, SPY Options
 
Posts: 330 since Oct 2012
Thanks: 554 given, 186 received


NGtrader View Post
By your question I can tell you are pretty new to this and that is not a criticism, it's ok.

From hard lessons I have made and lost a fortune on them. They are very nuanced instruments and you cannot just hold them as you do a stock or future. They are leveraged instruments and decay and volatility are important characteristics you must understand. If you just trade long put or long call you have very little margin to be right in terms of direction. Because they are leveraged, losses grow exponentially once the underlying goes against you. With income selling strategies you have more leeway but still you need to know advantages and disadvantages as well as understand the underlying asset.

I highly recommend virtual trading on CBOE's virtual trading page. It is free to register and you can trade both stock options and futures options on it.

https://www.cboe.com/trading-tools/virtual-trading-tools/virtual-trade

One thing beginners don't realize is that besides financial capital, psychological/emotional capital is a critical asset. If you take too many losses or take losses that are too big your psychological capital goes down exponentially. Some people never recover from that. I know people who finally gave up on trading.

So protect your psychological as well as financial capital by using that virtual trading tool and trading with appropriate risk for your account. If you are trading because you need to pay the rent, you have already lost because you will be too focused on outcome and not process. It's a cycle I see some of my friends in and they don't understand why they cannot solve the problems with their trading.

Don't try to hit home runs. Trading is a marathon and what you want is to consistently hit singles and to stay in the game for a long time.

Best advice someone could give a new trader

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
Reply With Quote
The following 4 users say Thank You to blb014 for this post:
 
(login for full post details)
  #14 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


blb014 View Post
Yeah that's not really how trading options works. It doesn't matter who is on the other side of the put or call if it is part of a long term plan. Don't fall into a mindset that someone or invest bank/HF is competing against you because that's just not the case for the majority of private investors/trader. They could care less.

I think the point here was not the professionals are on the other side of any particular trade, but that the professionals are out there, and their job is to make lots of money. They don't care about any individual - they just care about making money.

Many retail traders treat trading like a pickup basketball game at the local YMCA, not realizing that LeBron and Kevin Durant might be playing (and might not be on your team).

So my take on @myrrdin comment "You will compete against the best professional traders, having large experience and best possible education. They have all fundamental knowledge available almost in real time, and can use the best computers." is that you really have to have your act together to have a chance at success.

Follow me on Twitter Reply With Quote
The following 4 users say Thank You to kevinkdog for this post:
 
(login for full post details)
  #15 (permalink)
 myrrdin 
Market Wizard
Linz Austria
 
Experience: Advanced
Platform: Zaner360, TWS, Vantage
Broker: DeCarley, IAB, RJO
Trading: Commodities
 
Posts: 1,784 since Nov 2014
Thanks: 2,930 given, 2,419 received


kevinkdog View Post
I think the point here was not the professionals are on the other side of any particular trade, but that the professionals are out there, and their job is to make lots of money. They don't care about any individual - they just care about making money.

Many retail traders treat trading like a pickup basketball game at the local YMCA, not realizing that LeBron and Kevin Durant might be playing (and might not be on your team).

So my take on @myrrdin comment "You will compete against the best professional traders, having large experience and best possible education. They have all fundamental knowledge available almost in real time, and can use the best computers." is that you really have to have your act together to have a chance at success.

Never forget: The sum of all profits in trading of futures and options on futures is zero ! (minus fees ...)

Best regards, Myrrdin

Reply With Quote
The following user says Thank You to myrrdin for this post:
 
(login for full post details)
  #16 (permalink)
 blb014 
Dallas, Texas
 
Experience: Intermediate
Platform: TOS
Trading: AAPL, /ES, IWM, SPY Options
 
Posts: 330 since Oct 2012
Thanks: 554 given, 186 received


kevinkdog View Post
I think the point here was not the professionals are on the other side of any particular trade, but that the professionals are out there, and their job is to make lots of money. They don't care about any individual - they just care about making money.

Many retail traders treat trading like a pickup basketball game at the local YMCA, not realizing that LeBron and Kevin Durant might be playing (and might not be on your team).

So my take on @myrrdin comment "You will compete against the best professional traders, having large experience and best possible education. They have all fundamental knowledge available almost in real time, and can use the best computers." is that you really have to have your act together to have a chance at success.

I agree as far as retail day trading options. I think it is a waste of time and it is a flipping game at best. The daily ups and down with the countless variables, it almost impossible to apply any reasonable strategy on a daily basis.

But who really knows who is on the otherside of a contract, and what their motivation is for trading that option. IMO there is no boogeyman out to get you, it is all about the person's trading plan and goals. The market is much more complex, external factors and the underlying are most important not who is on the other side of a contract.

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
Reply With Quote
The following user says Thank You to blb014 for this post:
 
(login for full post details)
  #17 (permalink)
 blb014 
Dallas, Texas
 
Experience: Intermediate
Platform: TOS
Trading: AAPL, /ES, IWM, SPY Options
 
Posts: 330 since Oct 2012
Thanks: 554 given, 186 received


Traderjohnsblog View Post
You make a good point. I am not sure how many lose money. A lot I am sure. My perception (obviously scewed) is from my own experience, friends and the people that I have trained.

Sent using the futures.io mobile app

Seem what I mean don't believe everything that is posted on here

Day term trading options is recipe for disaster. Use options as way to meet your long term trading and investment goals not short term gains

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
Reply With Quote
 
(login for full post details)
  #18 (permalink)
 PK 1 
Kassel / Germany
 
Experience: None
Platform: MC
Broker: IB
Trading: CL/NG/ES
 
PK 1's Avatar
 
Posts: 72 since Aug 2011
Thanks: 128 given, 59 received


nicholassdyer View Post
How much can I earn with Options?

this is a question one can read a lot regarding options, futures, forex, etc.
imho the question shouldn't be how much is possible, rather how much effort one is willing to learn and understand things in that context. Sounds boring but without much effort and the understanding of what one is doing the statement that as a trader one is competing against sharks on the other side will turn all the dreams of a big profit into a nightmare. It doesn't matter whether one is competing directly, indirectly, every possibility to have a small piece of the cake is getting exhausted by the other sharks. Just choosing options because people make big money there is not a good base, just choosing futures because one wants to play like a big player without understanding the rules will blow up the account someday.

There's a lot of documents around options on the internet and good threads here also. Beside all the valuable information the most important thing is to try to understand the things and not just copy them. I remember 2015 with lots of discussions on selling options and people trying to emphasize some major drawbacks on a possible market turn. Caramba, the crash came and people got silent ... very slowly reconsidereing their original trading-idea (which was "flawless" a while before) with the conclusion they were wrong but only beaten on one eye, not knocked out. I've seen this here, on reddit, tastytrade, etc, people turning it the way they want it to be not open for things outside their range of calculations, until the market is teaching that things can change and this can happen damn fast.

Knowing that things are never perfect and knowing that one was wrong during the last big crash in 2015 after rejecting all advises and contrary words, then risking the own existence thinking this time one is entirely in charge is something everyone has to consider for hisself. No big deal being wrong in stocks, regarding options on futures for example you can't be wrong that often, it would kill you. So just following the crowd and jumping on the hot-things without having your own understanding and your own adjustment for your risk you are willing to enter would be not the best start.

So learning about options you'll learn that it's possible to earn loads of money but the same applies for the other side. Imho the amount of money you can earn shouldn't matter at all. The risk-reward-ratio one is able to achieve constantly is more important. Selling options the premium can be sometimes depressing compared to trading futures, especially being way longer in the market than with trading intraday a future. People often forget about this. The shorter the time you are in the market risking your house, the less likely it will kill you.

So for me I decided to do my Fx and Future-trades and the money I put aside is used for selling options, instead of earning almost no interest on a bank. I forgot to make millions with options, regularly selling options with a nice return without risking my existence is better for me.

just my 2 cents

Reply With Quote
The following 5 users say Thank You to PK 1 for this post:
 
(login for full post details)
  #19 (permalink)
 Traderjohnsblog 
Tampa florida usa
 
Experience: Advanced
Platform: NT
Trading: CL
 
Posts: 62 since Jan 2017
Thanks: 5 given, 75 received

Nicely said. I completely agree.

Sent using the futures.io mobile app

Reply With Quote
 
(login for full post details)
  #20 (permalink)
 rainmonkey 
Oakland, California
 
Experience: Beginner
Platform: Interactive Brokers, ToS
Trading: ES
 
Posts: 7 since Aug 2017
Thanks: 1 given, 1 received

If you've got a ton of money and can hire a bunch of sophisticated traders, you can earn a lot. If you're bootstrapping with some play money.... well, it'll take a while and I don't think you'll get the crazy 200%++ gains you see people throw around on the internet all the time.

Reply With Quote
 
(login for full post details)
  #21 (permalink)
 blb014 
Dallas, Texas
 
Experience: Intermediate
Platform: TOS
Trading: AAPL, /ES, IWM, SPY Options
 
Posts: 330 since Oct 2012
Thanks: 554 given, 186 received


rainmonkey View Post
If you've got a ton of money and can hire a bunch of sophisticated traders, you can earn a lot. If you're bootstrapping with some play money.... well, it'll take a while and I don't think you'll get the crazy 200%++ gains you see people throw around on the internet all the time.

Or lose a lot even with a bunch of "sophisticated traders"

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
Reply With Quote
 
(login for full post details)
  #22 (permalink)
 suko 
Kyoto, Japan
 
Experience: Intermediate
Platform: TW TOS LiveVol
Broker: TD, TW, IB, Saxo
Trading: VXX, VIX, SPY
 
suko's Avatar
 
Posts: 1,316 since Oct 2013
Thanks: 834 given, 1,403 received

I would rephrase this question to:

"How much time and effort will it most likely take before I can break even trading options?"

Follow me on Twitter Visit my futures io Trade Journal Reply With Quote
The following 2 users say Thank You to suko for this post:
 
(login for full post details)
  #23 (permalink)
 blb014 
Dallas, Texas
 
Experience: Intermediate
Platform: TOS
Trading: AAPL, /ES, IWM, SPY Options
 
Posts: 330 since Oct 2012
Thanks: 554 given, 186 received


suko View Post
I would rephrase this question to:

"How much time and effort will it most likely take before I can break even trading options?"

Not very hard at all in this market. Less is more with options. I avg about 5 option trades a month.

These guys trading commodity options and of course Ron's losing strategy I would not recommend starting out. With commodities there are external factors that can really influence the price.

Try trading SPY options first to get feel of the market.

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
Reply With Quote
 
(login for full post details)
  #24 (permalink)
Forex37
Zurich
 
 
Posts: 48 since Feb 2011
Thanks: 64 given, 17 received


blb014 View Post

............and of course Ron's losing strategy I would not recommend starting out.........


Losing strategy? I happen to trade the original Delta 3 Naked version (alas with 6xIM) since 2015 (including 08/2015) without problems.

Reply With Quote
 
(login for full post details)
  #25 (permalink)
 suko 
Kyoto, Japan
 
Experience: Intermediate
Platform: TW TOS LiveVol
Broker: TD, TW, IB, Saxo
Trading: VXX, VIX, SPY
 
suko's Avatar
 
Posts: 1,316 since Oct 2013
Thanks: 834 given, 1,403 received

Not very hard to make boatloads of money selling UVXY calls in this market either.

Follow me on Twitter Visit my futures io Trade Journal Reply With Quote
 
(login for full post details)
  #26 (permalink)
andrewhannigan
New York, United States
 
 
Posts: 7 since Aug 2017
Thanks: 0 given, 1 received


nicholassdyer View Post
How much can I earn with Options?

You can find your answer in this article.
https://steadyoptions.com/articles/how-much-can-i-earn-with-options-r233/

Reply With Quote
 
(login for full post details)
  #27 (permalink)
 blb014 
Dallas, Texas
 
Experience: Intermediate
Platform: TOS
Trading: AAPL, /ES, IWM, SPY Options
 
Posts: 330 since Oct 2012
Thanks: 554 given, 186 received


Forex37 View Post
Losing strategy? I happen to trade the original Delta 3 Naked version (alas with 6xIM) since 2015 (including 08/2015) without problems.

Hmmm, Sorry don't believe it, 6xIM would have been crushed too by VIX spike over 50. Did you roll down? or have more funds for margin? Naked with only 6xIM would have been disastrous.

Go back and read his thread, I had to roll down two or three times with over 20xIM. 6xIM naked would have been crushed.
It is losing strategy examples Ron, Karen SuperTrader

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
Reply With Quote
 
(login for full post details)
  #28 (permalink)
StopHunter
New York, New York
 
 
Posts: 14 since Nov 2015
Thanks: 1 given, 10 received

Most want to avoid any type of real answer, because in fact your question is not properly phrased. 'Money' is always the wrong way to ask any trading question.

In terms of rates of return, 30-70% a year for a conservative non-directional options strategy is quite the norm.

Reply With Quote
 
(login for full post details)
  #29 (permalink)
 Traderjohnsblog 
Tampa florida usa
 
Experience: Advanced
Platform: NT
Trading: CL
 
Posts: 62 since Jan 2017
Thanks: 5 given, 75 received


StopHunter View Post
Most want to avoid any type of real answer, because in fact your question is not properly phrased. 'Money' is always the wrong way to ask any trading question.

In terms of rates of return, 30-70% a year for a conservative non-directional options strategy is quite the norm.

I agree with stophunter. The only thing that would add is those numbers 30 to 70 percent will work for a directional options trader also.

Sent using the futures.io mobile app

Reply With Quote
The following user says Thank You to Traderjohnsblog for this post:
 
(login for full post details)
  #30 (permalink)
 harryguy 
st. louis missouri
 
Experience: Intermediate
Platform: tradestation
Trading: futures
 
Posts: 46 since Jun 2014
Thanks: 29 given, 22 received


myrrdin View Post
Always remember:

You will compete against the best professional traders, having large experience and best possible education. They have all fundamental knowlegde available almost in real time, and can use the best computers.

Imagine any other profession you have not studied. Perhaps Medical Doctor or Rocket Scientist or Chemical Researcher. Would you feel to be ready to compete against the best of them in their field of expertise ?

I am always surprized how many people think they can make a lot of money in trading without being at the level of their competition.

Best regards, Myrrdin

I had to give my opinion on this advice. YOU ARE ONLY COMPETING WITH YOURSELF! The above statement assumes that these "professional traders" are better than you and on the other side of all of your trades. That sounds like paranoia to me. They may be good traders ....... but who says your strategy isn't the same as theirs? If you approach your trades thinking you are always opposite of a better trader you are bound to lose. YOU ARE TRADING AGAINST THE MARKET! And the market is the collective opinion of everyone. Remember the crowd is wrong most of the time and try to think like a contrarian. And always remember you are just as human as the "crowd". I believe the only "competition" you have is yourself.

All that said, time and study are requirements for success in this game. And I'm thinking of starting motivational training ....... anyone interested?

Reply With Quote
The following 2 users say Thank You to harryguy for this post:
 
(login for full post details)
  #31 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


harryguy View Post
I had to give my opinion on this advice. YOU ARE ONLY COMPETING WITH YOURSELF! I believe the only "competition" you have is yourself.


This is dangerous thinking.

Trading is a (less than) zero sum game, so every dollar you make is coming out of someone else's pocket.

Everyone who trades is competing against each other, you just do not know exactly who you are against on any trade.

Follow me on Twitter Reply With Quote
The following user says Thank You to kevinkdog for this post:
 
(login for full post details)
  #32 (permalink)
 harryguy 
st. louis missouri
 
Experience: Intermediate
Platform: tradestation
Trading: futures
 
Posts: 46 since Jun 2014
Thanks: 29 given, 22 received


kevinkdog View Post
This is dangerous thinking.

Trading is a (less than) zero sum game, so every dollar you make is coming out of someone else's pocket.

Everyone who trades is competing against each other, you just do not know exactly who you are against on any trade.

If this line of thought motivates you stick with it. But you are not ever competing with "professional traders". Say I went long one contract on Friday. Someone else is on the other side of that trade and very likely it is a "professional". We can both make money from our position and when I close the trade it will be by offsetting my position with entirely different trader. And the theory of the market is that hedgers transfer risk to speculators. You can't assume that every trade you make is "against better traders". It will plant a seed that says every position you take must be wrong because professionals took the other side.

Reply With Quote
The following 3 users say Thank You to harryguy for this post:
 
(login for full post details)
  #33 (permalink)
 tpredictor 
North Carolina
 
Experience: Beginner
Platform: NinjaTrader, Tradestation
Trading: es
 
Posts: 644 since Nov 2011

Right, sometimes trading is competitive but I don't like to think about it that way. For example, I'm always offering liquidity to help the wrong sided traders (or trying too). If I didn't take the position against them then they wouldn't be able to exit into my orders. Now if I can't get my orders filled then yes I feel like I'm competing and the HFT love to blast in orders to make it competitive.

Rationally though, even if trading is negative sum then we still cannot know that traders are competing. The only time you are competing against a trader who is trading the exact same method with exact same entries and exits but neither of you know if you will be profitable. Trading is a risk transference mechanism. For example, let's imagine a trader is a swing day trader. Let's say they bought the low and sold near the high (relatively speaking). They made money. They transfer the risk to a scalper. As soon as they exit, the market bounces a few points. The scalper is able to make a profit too. The trade was let's imagined transferred to a longer term trader who plans to hold the trade over a few days and then the market drops.

It is more realistic to say that futures trading is a many summed game, in terms of individual trades, with an unknown outcome and/or trading is negatively summed and even if competitive there is unknown outcome. However, under certain conditions it becomes more negatively summed. Yes, when the volatility is low and/or only one type of trader is dominant then it is more likely negative sum and that is why it is so difficult to make money during those periods, i.e. when the range is narrow and the volatility is low.

We can also suspect the game becomes more negatively summed as your trading volume increases and risk decreases. Even if we consider it negatively sum, it still doesn't imply competition in the normal sense.

For example, let's imagine that two traders are competing to buy on some sort of support or trendline. One trader wins the fill (the other cancels) and the market moves up a bit and then some news hits and the market drops several points. The trader that "won" ended up taking the loss. Or imagine the trader that won, didn't want to take much risk, and gets stopped out for a few ticks and the other trader left their order and they get filled. The new trader that was filled was willing to take say greater risk, the market drops a few points, and then rallies and the "losing" trader takes profit.

In summary, even though trading is negatively summed then it does not posit that it has to be competitive. In terms of individual trades, it is not true that someone needs to win for you to lose. And even when traders do compete for a given trade, it is unknown whether the winner will be profitable or not. If it is viewed as competitive then one isn't competing against any individual trader but rather the entire market. But, the entire market is an abstract entity. Is it negative sum in the sense that if you open trades randomly you'll lose your account due to trading commissions: yes. But is it negative sum in the sense that you are trading/competing against another for a known outcome, less certain. The point is in normal games of competition you have known and fixed rules and goals. Markets are more complex. Is it competitive like if you were to bid/compete for an unknown prize at an auction that might even cost you something? I can see that.

As for all your profits must come from losing traders, this is not really meaningful because of 2 reasons I will point out. First, if we're talking about the market being competitive then it implies the market is predictable and if that is true it is probably only true with highest certainty under the shortest time frames. This implies 1 tick in most liquid markets. So, the most a trader can "take" from you is 2 ticks unless the market gaps. Also, this "you don't know who you are against" is also silly. If you trade futures, you know who you are against. You are always trading against the HFT who are trying to capture that 1-2 ticks or sometimes passive institutions/liquidity providers. There is another argument for why the most a trader could take from you is ~1 tick because you could always exit/transfer the risk with 1 tick stop.

Reply With Quote
 
(login for full post details)
  #34 (permalink)
 myrrdin 
Market Wizard
Linz Austria
 
Experience: Advanced
Platform: Zaner360, TWS, Vantage
Broker: DeCarley, IAB, RJO
Trading: Commodities
 
Posts: 1,784 since Nov 2014
Thanks: 2,930 given, 2,419 received


kevinkdog View Post
I think the point here was not the professionals are on the other side of any particular trade, but that the professionals are out there, and their job is to make lots of money. They don't care about any individual - they just care about making money.

Many retail traders treat trading like a pickup basketball game at the local YMCA, not realizing that LeBron and Kevin Durant might be playing (and might not be on your team).

So my take on @myrrdin comment "You will compete against the best professional traders, having large experience and best possible education. They have all fundamental knowledge available almost in real time, and can use the best computers." is that you really have to have your act together to have a chance at success.

kevinkdog's comment is right on the mark, and explains well what I intend to express.

Best regards, Myrrdin

Reply With Quote
The following 2 users say Thank You to myrrdin for this post:
 
(login for full post details)
  #35 (permalink)
 suko 
Kyoto, Japan
 
Experience: Intermediate
Platform: TW TOS LiveVol
Broker: TD, TW, IB, Saxo
Trading: VXX, VIX, SPY
 
suko's Avatar
 
Posts: 1,316 since Oct 2013
Thanks: 834 given, 1,403 received

Le Bron is retired from trading.

Now it's all Robocop.

Or rather Robocop with LeBron at the joystick.


"Persistence is very important. You should not give up unless you are forced to give up." -- Elon Musk
Follow me on Twitter Visit my futures io Trade Journal Reply With Quote
The following user says Thank You to suko for this post:
 
(login for full post details)
  #36 (permalink)
 blb014 
Dallas, Texas
 
Experience: Intermediate
Platform: TOS
Trading: AAPL, /ES, IWM, SPY Options
 
Posts: 330 since Oct 2012
Thanks: 554 given, 186 received


kevinkdog View Post
This is dangerous thinking.

Trading is a (less than) zero sum game, so every dollar you make is coming out of someone else's pocket.

Everyone who trades is competing against each other, you just do not know exactly who you are against on any trade.

Kevin I appreciate your input and I see where you are coming from, a futures day traders perspective

But there are multitudes of reason some bank, fund , trader could be buying or selling premium, hedging, protection, re-balancing. With highly traded equities and options literally thousands upon thousands are traded daily with infinite amount of reasons for those trades.

The market is so complex trying to outsmart or win against someone else is futile in my opinion and has absolutely no bearing whether I take a trade or not. If I think the company is solid and I sell option premium Who cares who is on the other side of the 1, 2 or 10 option contracts I traded, among the thousands that are traded that day.


I could see where this might play into someone's reasoning when trading illiquid commodities or trading at hundreds or thousands of contracts.

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
Reply With Quote
 
(login for full post details)
  #37 (permalink)
 wldman 
Market Wizard
Chicago Illinois USA
 
Experience: Advanced
Broker: IB, ToS
Trading: /ES, US Equities/Options
 
wldman's Avatar
 
Posts: 3,341 since Aug 2011
Thanks: 1,978 given, 8,856 received

I thought this was satire.

Although many of you would love to see wldman get started and type like wldman...I'm not gonna do it.

Visit my futures io Trade Journal Reply With Quote
The following 3 users say Thank You to wldman for this post:
 
(login for full post details)
  #38 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


blb014 View Post
The market is so complex trying to outsmart or win against someone else is futile in my opinion and has absolutely no bearing whether I take a trade or not.


So are you saying when you trade you are not trying to outsmart others and win?

Follow me on Twitter Reply With Quote
 
(login for full post details)
  #39 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


wldman View Post
I thought this was satire.

Although many of you would love to see wldman get started and type like wldman...I'm not gonna do it.

I'd be interested to hear your thoughts!

Follow me on Twitter Reply With Quote
 
(login for full post details)
  #40 (permalink)
 blb014 
Dallas, Texas
 
Experience: Intermediate
Platform: TOS
Trading: AAPL, /ES, IWM, SPY Options
 
Posts: 330 since Oct 2012
Thanks: 554 given, 186 received


kevinkdog View Post
So are you saying when you trade you are not trying to outsmart others and win?

I have no idea who the others are and what their motivations are for the trade so how could I outsmart them.

I don't look at charts drawing lines squiggly lines where I think sellers are buyers are going to be because IMO it is waste of time. What made Friday and Monday so special according to the charts?
I had a finance prof that studied chaos theory and the seemingly order of the market follow by chaos. Or disorder/followed by order with irrational human behavior as one of the main drivers. How could I outsmart that?

All I can do is invest/trade on good companies that I perceive to be a good long term return.

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
Reply With Quote
The following user says Thank You to blb014 for this post:
 
(login for full post details)
  #41 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


blb014 View Post
I have no idea who the others are and what their motivations are for the trade so how could I outsmart them.

I don't look at charts drawing lines squiggly lines where I think sellers are buyers are going to be because IMO it is waste of time. What made Friday and Monday so special according to the charts?
I had a finance prof that studied chaos theory and the seemingly order of the market follow by chaos. Or disorder/followed by order with irrational human behavior as one of the main drivers. How could I outsmart that?

All I can do is invest/trade on good companies that I perceive to be a good long term return.

If you are serious, and you really think you aren't trying to outsmart others and win at this, I honestly don't know what to say, other than to wish you good luck.

Follow me on Twitter Reply With Quote
The following user says Thank You to kevinkdog for this post:
 
(login for full post details)
  #42 (permalink)
 PK 1 
Kassel / Germany
 
Experience: None
Platform: MC
Broker: IB
Trading: CL/NG/ES
 
PK 1's Avatar
 
Posts: 72 since Aug 2011
Thanks: 128 given, 59 received


kevinkdog View Post
Trading is a (less than) zero sum game, so every dollar you make is coming out of someone else's pocket.

Everyone who trades is competing against each other, you just do not know exactly who you are against on any trade.

A zero sum game ... everytime I hear this I really wonder about the intention saying this. On one hand it's true, especially with the additional words from kevinkdog (less than), on the other hand for a trader it shouldn't matter at all and it doesn't. We see only the own result and work on this. It's absolutely without relevance to sum up all people / transactions / ... resulting in a zero sum game less costs when acting as a single trader.

Lots of traders watch the Zero from below and the only thing we can do is improving the own equity curve. For myself I was looking many years for great systems, trying countless things, developing many indicators and systems. Over the time I recognized that so many working trading approuches are already on the table, free and for everyone to see. One point I've learned is that a good trader and a good system doesn't necessarily means regularly and steady profit. Every trader has to adapt a working system to his own kind of thinking / trading otherwise the "great" trading approuch is nothing worth. Doing this and doing it day by day without blowing up the account is hard work, work on the own attitude and discipline, sticking to the own rules, etc. THIS is the real competition.

Reply With Quote
The following 4 users say Thank You to PK 1 for this post:
 
(login for full post details)
  #43 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


PK 1 View Post
A zero sum game ... everytime I hear this I really wonder about the intention saying this.

The intention of saying it is that not everyone can win. That means there is a competition between participants, for a limited number of dollars.

You can frame it as a competition with yourself, I suppose, but if you are not beating other traders, then you are losing to the other players - the competition.

But to act as if there is no competition, or that the competition is only in your head (as some other poster said), or that a trader doesn't need to try to win (as another poster said), ignores the reality of trading.

Follow me on Twitter Reply With Quote
The following 2 users say Thank You to kevinkdog for this post:
 
(login for full post details)
  #44 (permalink)
 wldman 
Market Wizard
Chicago Illinois USA
 
Experience: Advanced
Broker: IB, ToS
Trading: /ES, US Equities/Options
 
wldman's Avatar
 
Posts: 3,341 since Aug 2011
Thanks: 1,978 given, 8,856 received


kevinkdog View Post
I'd be interested to hear your thoughts!

First I have to say that the markets are NOT a zero sum game. Each individual trade is not even a zero sum as each context can be and is totally different. True enough that the market CAN BE be net greater than or less than a zero sum outcome. I ask everyone, before vociferously, defending a zero sum game, to think about that before typing.

Okay. The question, "How much can I make trading options?" has no basis at all. What I mean is that it shows complete naivety for the markets and trading.

A parallel construct: How would I be viewed and how would the question be received if I went to the Masters this spring and asked in the hospitality tent, How much money can I make from golf? Note that while I do have clubs, I have not seen them in at least two years. I remember what color the golf bag is but I have not been seen on a course with said clubs in probably three or four years. But I am a golfer, eager to capitalize financially from my love for playing golf. I have clubs. I've been to the Masters. I belong to a country club. I shot an eagle ONCE and a double eagle ONCE. I typically get two or three "pars" per round. But I don't have a handicap and I've never broken 90.

At CBOE I was NOT notable as prolific, meaning size and frequency. I was not the fastest, smartest, luckiest or most effective guy in my crowd. I was consistent and reliable. Every day when I'd take the escalator to the trading floor...at that moment when the building geometry gives way to the expanse of the floor...I'd think Holy Shit! I'm going to "work", as a local, on the best, most dynamic, most competitive trading floor in the world. The guys standing all around me are among the best traders in the world. In preparation for that moment I NEVER asked or wondered how much money I could make. Implicitly, it was a SHIT TON...why reveal myself and ask...why cloud my focus to wonder?

I'd been a trader for a while before I arrived. The prior year I probably made $500,000 give or take running a NASDAQ trading desk. But coming into this, the big league, my expectation was first to survive...meaning not to lose money, and try to fit in. I clerked for a great trader and wonderful man for six months before even thinking about membership or trading. I refused any pay at all during that time, but I did accept a $5,000 "bonus" the week before Christmas. I passed membership, got my badge, and chose a crowd. The first three months I might have been on 15 trades. For perspective, there might have been 3000-5000 trades in the crowd that month. So, net nine months in I was "down" probably $25,000-$30,000. That first year I probably made $80,000. I felt like I was on my way.

Prolific traders during that time would have daily swings in their net liq of 4MM to 8 MM dollars. Typical guys like me might have daily swings in the low to mid six figures. There are usually 21 days in a trading month. Sometimes things went your way, sometimes they did not. BUT in my time there I NEVER took a withdrawal against my net liq. Professional traders do not like, no they HATE to hit the account for any reason.

I want folks to understand that. There is a difference between trading to live and living to trade. If trading is what you do, it will be a long road...sometimes awesome and sometimes challenging. If trading is who you are, everyday when you log in and the screen fires up you will think, Holy Shit, I'm getting a chance to participate in the last bastion of true capitalism and an opportunity to make a great outcome for my family.

Today, if a reasonably skilled person had $500,000 in cash and securities in an account with full options and futures access, they could routinely bank $5,000 to $15,000 a month without outsize risk. That is trading profits, not market appreciation. A bunch out of 100 with that set up could do better...BUT a typical person (read average skills and luck) will lose money trading options and futures in a normal month. ANYONE that has actually traded those markets for a few months would, or should, know that.

That was the bell. I'd elaborate if anyone asked.

Dan

Visit my futures io Trade Journal Reply With Quote
The following 12 users say Thank You to wldman for this post:
 
(login for full post details)
  #45 (permalink)
 PK 1 
Kassel / Germany
 
Experience: None
Platform: MC
Broker: IB
Trading: CL/NG/ES
 
PK 1's Avatar
 
Posts: 72 since Aug 2011
Thanks: 128 given, 59 received


kevinkdog View Post
You can frame it as a competition with yourself, I suppose, but if you are not beating other traders, then you are losing to the other players - the competition.

I wrote it above already, one has to level the own abilities such that one is profitable surviving in the pool of sharks. Having this the point that one is competing with the market participants is without relevance. It's simply an abstract phrase not helping in any way for the own trading. The own (fulfilling) trading skill is already implying that one has to be able to beat the market in any way (which is surviving the huge competition in the market) in order to survive as a trader.

And in the end exactly that is the case, one is competing with the market. Stating things like competing against other traders is just a false projection leading to wrong / misleading conclusions / statements (as seen above by other posts here). Re-Phrasing it as competing against those sharks swimming in the same pool would be more accurate.


kevinkdog View Post
But to act as if there is no competition, or that the competition is only in your head (as some other poster said), or that a trader doesn't need to try to win (as another poster said), ignores the reality of trading.

Not my words, I can't justify other peoples words.

Reply With Quote
 
(login for full post details)
  #46 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


wldman View Post
First I have to say that the markets are NOT a zero sum game. Each individual trade is not even a zero sum as each context can be and is totally different. True enough that the market CAN BE be net greater than or less than a zero sum outcome. I ask everyone, before vociferously, defending a zero sum game, to think about that before typing.
Dan

Thanks Dan.

Just to clarify, I was referring to the futures market when I used the term "zero sum" because in total, the amount won is equal to the amount lost. In stocks, that is not true, because stocks can go up and all stockholders make money, without someone losing.

I appreciate your response.

Follow me on Twitter Reply With Quote
The following user says Thank You to kevinkdog for this post:
 
(login for full post details)
  #47 (permalink)
 blb014 
Dallas, Texas
 
Experience: Intermediate
Platform: TOS
Trading: AAPL, /ES, IWM, SPY Options
 
Posts: 330 since Oct 2012
Thanks: 554 given, 186 received


kevinkdog View Post
If you are serious, and you really think you aren't trying to outsmart others and win at this, I honestly don't know what to say, other than to wish you good luck.

You are looking at from a short-term futures traders perspective. Long term traders especially with equities and options have a different perspective. There are equities that I have held for the last 14 years trading in and out positions with options. Me trying to outsmart "someone" doesn't not factor in to any trades I take.

As far as winning, how do you define that as regards to trading? If it is being profitable well I would say 99% of Americans invested in the market have been winning this year or any year with positive return in the overall market. Is that a zero sum game when the vast majority is winning? Wildman put forth a good answer.

If winning to you is beating the S&P annual return, yes I'm winning but at what point do diminishing returns happen if I'm only beating the S&P by a couple percentage points, compounded over years It makes a difference but time is finite resource.

The truth is that most of us are of average intelligence, I know I am. We are not going to "outsmart" quants back by supercomputers and physicists from MIT and Harvard.

****Edit ^^^^^^last year^^^

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
Reply With Quote
 
(login for full post details)
  #48 (permalink)
 blb014 
Dallas, Texas
 
Experience: Intermediate
Platform: TOS
Trading: AAPL, /ES, IWM, SPY Options
 
Posts: 330 since Oct 2012
Thanks: 554 given, 186 received


kevinkdog View Post
Thanks Dan.

Just to clarify, I was referring to the futures market when I used the term "zero sum" because in total, the amount won is equal to the amount lost. In stocks, that is not true, because stocks can go up and all stockholders make money, without someone losing.

I appreciate your response.

What if someone is hedging a position or a commodity?
There are longer term strategies that can be implemented with futures also.

Regarding stocks, On a given day there are finite number of issuance among an equity *(I know it changes from time to time - dilution, treasury stock, exercised options) so is that a zero sum? Someone sells and the price goes up the, the stockholder "won" and the seller "lost"

There are multiple reasons why someone might take a futures or options trade and looking at from a "winning, losing and outsmarting" perspective is myopic IMO

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
Reply With Quote
 
(login for full post details)
  #49 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


blb014 View Post
What if someone is hedging a position or a commodity?
There are longer term strategies that can be implemented with futures also.



Here is a simple example:

I buy a mini S&P futures contract. I hold for a month then I sell, and I make $5000.

During that time, someone held the short side of that contract. It could have been multiple people, it could have been hedgers, it could have been speculators, doesn't matter. But you add up all the people holding that contract during that time I held it, and the amount they lost on that futures contract adds up to $5000.

My $5000 gain + their $5000 loss = $0 (zero sum)

Note I am only talking about the futures market transaction being zero sum.

Follow me on Twitter Reply With Quote
The following user says Thank You to kevinkdog for this post:
 
(login for full post details)
  #50 (permalink)
 blb014 
Dallas, Texas
 
Experience: Intermediate
Platform: TOS
Trading: AAPL, /ES, IWM, SPY Options
 
Posts: 330 since Oct 2012
Thanks: 554 given, 186 received


kevinkdog View Post
Here is a simple example:

I buy a mini S&P futures contract. I hold for a month then I sell, and I make $5000.

During that time, someone held the short side of that contract. It could have been multiple people, it could have been hedgers, it could have been speculators, doesn't matter. But you add up all the people holding that contract during that time I held it, and the amount they lost on that futures contract adds up to $5000.

My $5000 gain + their $5000 loss = $0 (zero sum)

Note I am only talking about the futures market transaction being zero sum.

Thanks for your response Kevin. I think your opinion has merit from a day traders perspective.

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
Reply With Quote
 
(login for full post details)
  #51 (permalink)
 wldman 
Market Wizard
Chicago Illinois USA
 
Experience: Advanced
Broker: IB, ToS
Trading: /ES, US Equities/Options
 
wldman's Avatar
 
Posts: 3,341 since Aug 2011
Thanks: 1,978 given, 8,856 received


kevinkdog View Post
Here is a simple example:

I buy a mini S&P futures contract. I hold for a month then I sell, and I make $5000.

During that time, someone held the short side of that contract. It could have been multiple people, it could have been hedgers, it could have been speculators, doesn't matter. But you add up all the people holding that contract during that time I held it, and the amount they lost on that futures contract adds up to $5000.

My $5000 gain + their $5000 loss = $0 (zero sum)

Note I am only talking about the futures market transaction being zero sum.


Prices are not linear.

If I sold you that contract and my trade was sell to close my P/L is not related to your P/L in ANY way. The additional amount that I could have made or lost is theoretical. Number of contracts is not finite.

Visit my futures io Trade Journal Reply With Quote
The following 3 users say Thank You to wldman for this post:
 
(login for full post details)
  #52 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


wldman View Post
Prices are not linear.

If I sold you that contract and my trade was sell to close my P/L is not related to your P/L in ANY way. The additional amount that I could have made or lost is theoretical. Number of contracts is not finite.

Did I ever say your P/L was directly related to mine? No.

What is related is the sum total of all the longs and the sum total of all the shorts.

Follow me on Twitter Reply With Quote
 
(login for full post details)
  #53 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


wldman View Post
Prices are not linear.

If I sold you that contract and my trade was sell to close my P/L is not related to your P/L in ANY way. The additional amount that I could have made or lost is theoretical. Number of contracts is not finite.


Let's use your example:

wldman buys a mini S&P Jan 1. Group X holds the short side of that contract. S&P is at 2500.

wldman sells that long contract to Kevin on Jan 31, with S&P at 2800. wldman makes 300*50 = $15K. Nice trade widman.

Now Kevin is long that contract, Group X is still short.

Kevin now sells it Feb 6 at 2700. Kevin loses 100*50 = -$5K. Kevin is obviously an idiot.

Now what about Group X? They sold short at 2500, now price is 2700. They have lost $10K

$15K - 5K - 10K = 0 (zero sum)


If this is wrong, someone please show me.

Follow me on Twitter Reply With Quote
 
(login for full post details)
  #54 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


blb014 View Post
Thanks for your response Kevin. I think your opinion has merit from a day traders perspective.

My response was not "my opinion" it is simple math, and it applies to more than just day traders. If I stated something wrong, please correct me.

Sorry I was unable to help you understand this.

Good day.

Follow me on Twitter Reply With Quote
 
(login for full post details)
  #55 (permalink)
 wldman 
Market Wizard
Chicago Illinois USA
 
Experience: Advanced
Broker: IB, ToS
Trading: /ES, US Equities/Options
 
wldman's Avatar
 
Posts: 3,341 since Aug 2011
Thanks: 1,978 given, 8,856 received

I'll continue with my understanding, you continue with yours.

Visit my futures io Trade Journal Reply With Quote
 
(login for full post details)
  #56 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


wldman View Post
I'll continue with my understanding, you continue with yours.

I am always willing to learn. Please show me exactly how anything I said is incorrect.

Follow me on Twitter Reply With Quote
 
(login for full post details)
  #57 (permalink)
 xplorer 
Site Moderator
London UK
 
Experience: Beginner
Platform: CQG
Broker: S5
Trading: Futures
 
xplorer's Avatar
 
Posts: 5,350 since Sep 2015
Thanks: 13,486 given, 12,940 received

I've always wanted to chime in on the zero-sum game thing, but I've never had the chance.

In particular, when someone says "there's a buyer and a seller, one will be the winner and one will be the loser" (assuming we're talking about 1 transaction where buyer/seller are on opposite sides) that always puzzled me.

Couldn't I be buying on a downtrend for just a few ticks on a retracement, and couldn't the person who sold it to me be holding for longer and we could both end up winners? This of course assuming that both the people that entered into the transaction were flat to begin with.

Intuitively I feel this is not stricly related to the zero-sum game argument you guys are discussing but I've always wondered.

Reply With Quote
The following 2 users say Thank You to xplorer for this post:
 
(login for full post details)
  #58 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


xplorer View Post
I've always wanted to chime in on the zero-sum game thing, but I've never had the chance.

In particular, when someone says "there's a buyer and a seller, one will be the winner and one will be the loser" (assuming we're talking about 1 transaction where buyer/seller are on opposite sides) that always puzzled me.

Couldn't I be buying on a downtrend for just a few ticks on a retracement, and couldn't the person who sold it to me be holding for longer and we could both end up winners? This of course assuming that both the people that entered into the transaction were flat to begin with.

Intuitively I feel this is not stricly related to the zero-sum game argument you guys are discussing but I've always wondered.

On any individual trade, the game is not zero sum, unless both parties enter and exit at the same time on the opposite side.

But with futures, when you take the whole aggregate sum total of all the transactions with a certain contract, that is zero sum. It is because every contract has 2 sides - a long side and a short side.

For instance, take the Dec 2017 mini S&P contract. There were millions of transactions, millions of participants, all doing different things. If you take the net gain/loss of all the long positions, it will exactly equal the net gain/loss of all the shorts. Zero Sum. In the aggregate, the winning side took from the losing side.

Doesn't mean that there weren't shorts that made money, or that there were longs that lost money. That might be confusing.

This is not how stocks work, because there is an ownership stake. Everyone here could buy Google stock, and in 5 years, we could all be winners, and that does not mean there were losers on the other side of our trades.

Hopefully I explained it well. If not, please let me know.

Follow me on Twitter Reply With Quote
The following 2 users say Thank You to kevinkdog for this post:
 
(login for full post details)
  #59 (permalink)
 xplorer 
Site Moderator
London UK
 
Experience: Beginner
Platform: CQG
Broker: S5
Trading: Futures
 
xplorer's Avatar
 
Posts: 5,350 since Sep 2015
Thanks: 13,486 given, 12,940 received

Thanks Kevin, no, you explained it well and I intuitively understand the difference between stock and futures.

I think I understand what you say about taking one contract like the ES Dec '17 and summing all the longs and all the shorts you should get zero. Does that account for rollovers?

Reply With Quote
The following 2 users say Thank You to xplorer for this post:
 
(login for full post details)
  #60 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


xplorer View Post
Thanks Kevin, no, you explained it well and I intuitively understand the difference between stock and futures.

I think I understand what you say about taking one contract like the ES Dec '17 and summing all the longs and all the shorts you should get zero. Does that account for rollovers?

My example takes Dec 2017 contract, or any contract, by itself.

Rollovers would be accounted for with the individual contracts. Say you bought Dec 2016 contract, and held and rolled into March 2017, then rolled into June, etc. You'd have a P/L for each of those contracts. So would everyone else who held those contracts. And the aggregate of all Dec 2016 contracts is zero, of all March 2017 contracts is zero, etc.

Follow me on Twitter Reply With Quote
The following user says Thank You to kevinkdog for this post:
 
(login for full post details)
  #61 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received

If it seems like I am arguing with people who I respect, like @wldman, I sincerely apologize. Arguments generally do not make for good forum reading.

I'd rather it be a discussion, so people can hopefully come to a common understanding.

So, my request of everyone - if anything I've said in this thread about zero sum is incorrect or wrong, PLEASE correct me. An example showing how I am wrong would be really helpful.

If I am wrong, I'll happily admit it. I make mistakes all the time.

Follow me on Twitter Reply With Quote
The following 2 users say Thank You to kevinkdog for this post:
 
(login for full post details)
  #62 (permalink)
 wldman 
Market Wizard
Chicago Illinois USA
 
Experience: Advanced
Broker: IB, ToS
Trading: /ES, US Equities/Options
 
wldman's Avatar
 
Posts: 3,341 since Aug 2011
Thanks: 1,978 given, 8,856 received

I'm unable to see a point in an ongoing debate. It could be that there is a misunderstanding, a semantics issue, about the understanding of what a zero sum game is and why or if that matters.

A derivative contract is not a finite thing. It is created by contractual agreement between two adverse participants...one buyer and one seller. Net winners and net losers do not match to zero ergo a zero sum output could happen, but so could any other outcome.

Long to open could be paired with short to open or short to close. Short to open could be paired with long to open or long to close. The obligations created are not linked.

But I'm pretty sure I don't know what Kevin is talking about.

Visit my futures io Trade Journal Reply With Quote
The following user says Thank You to wldman for this post:
 
(login for full post details)
  #63 (permalink)
 TheShrike 
Hi Mom!
Bridgeport, Ct
 
Experience: None
Broker: Tasty
Trading: STONKS
 
TheShrike's Avatar
 
Posts: 528 since Jun 2012
Thanks: 1,575 given, 902 received

Kevin is correct. Nothing is conjured in futures markets. Any gain is the direct result of someone's loss somewhere along the line. If you want to get really technical, trading in futures markets is actually negative sum. Commission makes losers worse and is also a drag on winners. Not only do you have to beat the other players, you have costs to worry about. That's why trading is so difficult. Also, wouldn't you know it...negative sum games are the most competitive...hmmm

Reply With Quote
The following 3 users say Thank You to TheShrike for this post:
 
(login for full post details)
  #64 (permalink)
 tpredictor 
North Carolina
 
Experience: Beginner
Platform: NinjaTrader, Tradestation
Trading: es
 
Posts: 644 since Nov 2011

Example where both parties can make money. This example cast doubt that futures trading has to be a negative sum game and shows an example where the entire futures market could be a positive sum game.

Let's imagine you are a speculator. You think the market will go up over some weeks. You go to market and buy 1 ES contract. A high frequency arb firm is on the other side of the trade and we'll assume they always know the true value of the ES and quote it on both sides. They capture 1 tick spread because you went to market and immediately offset their futures contract with a short of the SPY. Now, let's say in 2 weeks the ES has rallied $2,000. You made $2,000. The high frequency arb firm made $12.50 on your trade and we'll say they make another $12.50 when you unwind. The rest of the profits came from the market's change in value.

Is it really negative sum? You did lose $25+ your trade costs. However, you made ~$2,000 and the arb firm made $25.

Where did the $2,000 in profit come from? Remember, the arb firm is always quoting the true instant value. There are no other contracts except your contract. What about the arb firm trying to be a strong hand and not give you your winnings? In this model, we assume that other arb firms would trade if that were the case. In this case, the $2,000 didn't come from futures traders losses because there are no losses. It had to come from the drift in the stock market and/or other non futures traders loses. Technically, sure the arb firm will report a $2,000 loss on the futures contract but they will report a $2,000 win on their stock trades. The point is your win did not come at the expense of anyone you were counter party too nor as a result of trading a contract that is matched with another.

Reply With Quote
 
(login for full post details)
  #65 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received

Just to recall what I said previously...


kevinkdog View Post

But with futures, when you take the whole aggregate sum total of all the transactions with a certain contract, that is zero sum...

This is not how stocks work, because there is an ownership stake.


The example in the post above inadvertently confirms both of my points:


The futures market is a zero (negative) sum game (the futures market transactions net to zero)

The stock market is not a zero sum game (the stock market SPY trade does not net to zero)


Rather than cast doubt on "zero sum" claim, the example given actually confirms it.

Follow me on Twitter Reply With Quote
The following 2 users say Thank You to kevinkdog for this post:
 
(login for full post details)
  #66 (permalink)
 TheShrike 
Hi Mom!
Bridgeport, Ct
 
Experience: None
Broker: Tasty
Trading: STONKS
 
TheShrike's Avatar
 
Posts: 528 since Jun 2012
Thanks: 1,575 given, 902 received


tpredictor View Post
Technically, sure the arb firm will report a $2,000 loss on the futures contract but they will report a $2,000 win on their stock trades. The point is your win did not come at the expense of anyone you were counter party too nor as a result of trading a contract that is matched with another.

The arb firm lost 2,000 dollars on the futures trade minus cost (if any). You profited 2,000 dollars on the trade minus your cost. Your 2,000 dollars that you have in your pocket comes from a direct result of the arb firm LOSING 2,000 dollars. Nevermind that they hedged their position in another market - that has nothing to do with what we're talking about. Mathematically, futures markets have to be zero sum, there is no other way.

Reply With Quote
The following 3 users say Thank You to TheShrike for this post:
 
(login for full post details)
  #67 (permalink)
 tpredictor 
North Carolina
 
Experience: Beginner
Platform: NinjaTrader, Tradestation
Trading: es
 
Posts: 644 since Nov 2011

The definition I have for zero/negative sum game is a game where all participants lose or sum of their transactions nets to zero (and negative with costs). In the example I gave, both futures participants made money and no futures participants lost money. The key word is participant and the word "or". The arbitrage firm could not have made money if they weren't a futures participant. This suggest that if we consider futures market as a closed system then it is negative sum. The transactions net to zero and then it becomes negative with costs. But, in the real world, it is not a closed system at least with equity futures.

The important part is, even though the futures market is negative sum: this example shows that it is possible for all futures participants to make money. I gave the example of a week but it could be over a minute, an hour, day, etc. The important ramification is that you postulated knowing that futures market was zero sum to be important because it emphasizes the traders compete and/or the wins come from other traders losses. But, I provided a counter example where all futures participants were able to make a profit. The wins from the speculator did not come from the losses of any other futures participants or traders. Yes, on a transaction basis it did but on a participant basis it didn't.

I'd repeat the key idea isn't how we consider the futures market but the implication that it is possible, in the real world, for all futures participants to make a profit.

It might be worth knowing when it is likely to be more vs less competitive:

More competitive
1. Only one frequency trader dominant/active in the markets.
2. Commonly used and/or known strategy
3. High certainty of outcome
4. Low risk
5. Shorter holding period

Less competitive
1. Multiple frequency traders active.
2. Less commonly used or known strategy.
3. More uncertainty of outcome
4. Higher risk
5. Longer holding period

Reply With Quote
 
(login for full post details)
  #68 (permalink)
 TheShrike 
Hi Mom!
Bridgeport, Ct
 
Experience: None
Broker: Tasty
Trading: STONKS
 
TheShrike's Avatar
 
Posts: 528 since Jun 2012
Thanks: 1,575 given, 902 received

No, no, no! Why do keep insisting that all futures participants are able to profit? That's not even the case in your own example. The arb firm lost 2k, someone else made 2k. That's the only way it can work in futures markets. Net zero minus cost. The exact definition of zero-sum. The fact they did some risk arb in another market is beside the point. They lost 2k on their futures trade. It is possible for two market participants to make profit, but in the realm of futures everything nets to zero.

Reply With Quote
The following 3 users say Thank You to TheShrike for this post:
 
(login for full post details)
  #69 (permalink)
 tpredictor 
North Carolina
 
Experience: Beginner
Platform: NinjaTrader, Tradestation
Trading: es
 
Posts: 644 since Nov 2011

How did they lose 2k on the futures side? I said they knew the true instant value of the underlying at all times, so they had to make 2 ticks from the futures side. Also, they are futures participants. This is the point of the examples: futures transactions have to net to zero but it is still possible for all futures participants can still make money. Also, they could not have made money from the stock/index side without trading the futures. The profits had to come from the futures side. In actuality, the arb firm locked in 2 ticks of profits on the futures side and then they transferred the index risk to the speculator. The speculator made $2,000 from the SPX side. This illustrates something else: the arb firm is shown as the futures loser but their actual profits came from the futures side. The speculator shows a $2,000 win but his profits came from the SPX side-- not from futures.

Extra thought and not central to the argument, a bit contrived but still might be worth consideration, even though the speculator did lose some money on the trade. He might have had a higher cost of capital and/or not able to obtain the capital and still saved and/or accrued a value. This is somewhat tangential but if his borrow rate was higher then he may still came out ahead trading the futures. Let's say if he made the trade in stocks, he'd need to borrow 50k and could use 2x leverage from his broker (which has a cost too which we'll ignore) but let's say he can borrow 50k at 6% with no extra costs. $50,000*.06 = $3,000/52 = $57. He saved $25 trading the futures.


TheShrike View Post
No, no, no! Why do keep insisting that all futures participants are able to profit? That's not even the case in your own example. The arb firm lost 2k, someone else made 2k. That's the only way it can work in futures markets. Net zero minus cost. The exact definition of zero-sum. The fact they did some risk arb in another market is beside the point. They lost 2k on their futures trade. It is possible for two market participants to make profit, but in the realm of futures everything nets to zero.


Reply With Quote
 
(login for full post details)
  #70 (permalink)
 jackbravo 
SF, CA/USA
 
Experience: Beginner
Platform: SC
Broker: Stage 5
Trading: NQ....that's what it boils down to
 
jackbravo's Avatar
 
Posts: 1,339 since Jun 2014
Thanks: 4,346 given, 2,389 received

It seems to me there are two different discussions here. TheShrike and KevinKDog are talking about the math behind futures ONLY. Everybody else is discussing the reality of the overall market.

All money from winning FUTURES trades + all losses from losing Futures trades = 0

There is no arguing with that equation. If you disagree with that equation, then write the equation you think is correct.

Sent using the futures.io mobile app

"It does not matter how slowly you go, as long as you do not stop." Confucius
Reply With Quote
The following 3 users say Thank You to jackbravo for this post:
 
(login for full post details)
  #71 (permalink)
 blb014 
Dallas, Texas
 
Experience: Intermediate
Platform: TOS
Trading: AAPL, /ES, IWM, SPY Options
 
Posts: 330 since Oct 2012
Thanks: 554 given, 186 received


wldman View Post
I'm unable to see a point in an ongoing debate. It could be that there is a misunderstanding, a semantics issue, about the understanding of what a zero sum game is and why or if that matters.

A derivative contract is not a finite thing. It is created by contractual agreement between two adverse participants...one buyer and one seller. Net winners and net losers do not match to zero ergo a zero sum output could happen, but so could any other outcome.

Long to open could be paired with short to open or short to close. Short to open could be paired with long to open or long to close. The obligations created are not linked.

But I'm pretty sure I don't know what Kevin is talking about.

That pretty much sums it up.

It is possible to lose more on call contract than the initial and that is no where close to being zero sum. You have to consider the option pricing model also

Kevin can you show an example with real option data where contracts over a certain time period equaled zero? There is your answer.

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
Reply With Quote
 
(login for full post details)
  #72 (permalink)
 blb014 
Dallas, Texas
 
Experience: Intermediate
Platform: TOS
Trading: AAPL, /ES, IWM, SPY Options
 
Posts: 330 since Oct 2012
Thanks: 554 given, 186 received


jackbravo View Post
It seems to me there are two different discussions here. TheShrike and KevinKDog are talking about the math behind futures ONLY. Everybody else is discussing the reality of the overall market.

All money from winning FUTURES trades + all losses from losing Futures trades = 0

There is no arguing with that equation. If you disagree with that equation, then write the equation you think is correct.

Sent using the futures.io mobile app

You do realize futures /ES is a derivative of S&P 500 index stocks, you add in options (what this thread is about) and it is most certainly not zero sum.

I encourage you to go explore and study derivatives (options) and the option pricing model.

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
Reply With Quote
The following user says Thank You to blb014 for this post:
 
(login for full post details)
  #73 (permalink)
 jackbravo 
SF, CA/USA
 
Experience: Beginner
Platform: SC
Broker: Stage 5
Trading: NQ....that's what it boils down to
 
jackbravo's Avatar
 
Posts: 1,339 since Jun 2014
Thanks: 4,346 given, 2,389 received


blb014 View Post
You do realize futures /ES is a derivative of S&P 500 index stocks, you add in options (what this thread is about) and it is most certainly not zero sum.

I encourage you to go explore and study derivatives (options) and the option pricing model.

That's fine. But I'm addressing the point of FUTURES ONLY being a zero sum equation. You're adding options. I'm just saying that you guys are discussing different things.

Sent using the futures.io mobile app

"It does not matter how slowly you go, as long as you do not stop." Confucius
Reply With Quote
The following 3 users say Thank You to jackbravo for this post:
 
(login for full post details)
  #74 (permalink)
 kevinkdog   is a Vendor
 
 
Posts: 2,990 since Jul 2012
Thanks: 1,590 given, 5,936 received


blb014 View Post
That pretty much sums it up.

It is possible to lose more on call contract than the initial and that is no where close to being zero sum. You have to consider the option pricing model also

Kevin can you show an example with real option data where contracts over a certain time period equaled zero? There is your answer.

I am starting to realize as @jackbravo stated that we (me, shrike, Jack) are talking about a totally different concept than you, wldman and harryguy.

So let me try to understand you. Can you explain (with numbers preferably) what you mean by this:
"It is possible to lose more on call contract than the initial and that is no where close to being zero sum. You have to consider the option pricing model also"

and then explain what you are asking for with this: "can you show an example with real option data where contracts over a certain time period equaled zero?"

Because I honestly don't understand what you are asking.

If you don't want to explain, that is fine too. At this point, everyone is probably pissed at each other anyhow, likely because we are talking about different things. Might be better for everyone's sanity just to let this discussion die unresolved.

Follow me on Twitter Reply With Quote
The following 4 users say Thank You to kevinkdog for this post:
 
(login for full post details)
  #75 (permalink)
 tpredictor 
North Carolina
 
Experience: Beginner
Platform: NinjaTrader, Tradestation
Trading: es
 
Posts: 644 since Nov 2011

I think the problem is and I pointed this out several posts ago, the definition of a zero sum game. I think some arguments, to Kevin's point, is result of misunderstandings. However, my example conclusively demonstrates that Kevin's arguments based on the presupposition that the futures market is zero sum are wrong.

Wikipedia describes it mathematically, sum of wins and sum of losses and mentions zero-sum thinking as basically thinking one loss must come from another.

However, Merriam-Webster defined it as

A situation in which one person or group can win something only by causing another person or group to lose it.

Business dictionary describes it thus:
In decision theory, the 'lose-lose' situation where all participants lose or the sum of winnings (positives) and losses (negatives) is negative. See also positive sum game and zero sum game.
-----

My points are very clear

1. If we consider the futures PARTICIPANTS and the EXAMPLE I gave, the futures market does not have to be zero sum.
2. If we consider Merriam-Webster definition, the word "cause" is a problem. In my example, the speculator does not cause the arbitragers losses even if we don't consider that they actually made a profit. The arbitrager did "cause" the speculators hypothetical loss even though they acquired an actual win.
3. If we consider it purely mathematically and as a closed system. Kevin is right. However, he is INCORRECT about the implications of that it is zero/negative sum because he FALSELY believes that one traders gains HAVE to come from another losses. Notice I said "trader". Yes, all CONTRACTS have sum to zero. But, all TRADERS can win. Go back to my example if you don't believe me. Remember, he uses the argument that futures markets are zero sum to argue that it must be competitive and claims failing to see this is ignoring reality. My argument clearly shows this to be incorrect.


Mathematically with the formal definition Kevin is right. Mathematically the futures market is a zero sum (and negative sum with costs) games. However, he is wrong about where the losses have to come from and the conclusion that all traders must lose. His arguments that futures markets must be competitive stem from idea that one traders win must come from another's losses. On the second argument, he is wrong "that it must" because I shown an example where it DID NOT. Of course, that does not mean that it cannot be competitive-- it certainly can be.

In other words, technically and ironically the futures market is a zero sum game but the thought because of that it must lead to zero sum thinking is incorrect. The mistake derives from the thought that the only way to make money from futures trades is by winning the profit another-- in reality the arbitrager can offset it with the stock market. The wins could come from drift in market, investors, stock traders, etc. no one really knows but they don't have to come from another traders losses. Kevin is also correct if we consider HYPOTHETICAL profits. In the example I gave, hypothetically the speculator lost $25 but made $2,000 actual. The arb trader shows an actual loss $2000 but made $25. If we don't get philosophical though, if I make $2,000 and the trader I'm trading against makes $25 then it is a net benefit or win-win.

The error in Kevin's thinking is the result of considering the futures market as a closed system only and/or not excluding equity index futures from his argument. As for other markets, I'm not sure. However, even if they are negative sum, the arguments regarding competition can still be debated because of uncertainty and hedging. For example, let's say an oil refiner wants to lock in their profits from crude oil. They have the oil underlying product. They short the futures market. They think it will probably rise but the risk to the downside is too high to take. Some global event causes futures to rise. They may shown an actualized futures loss but didn't really lose anything because they hold the underlying. They only lost a hypothetical profit. It is more like paying an insurance.

What else? Some might argue we can ignore the arbitrager's profit -- that it somehow came from the equity market but, in the example, provided it could not. The arbitrager merely knew the value of the index and quoted offset from it. Their profits therefore must have came from the futures side.

Reply With Quote
 
(login for full post details)
  #76 (permalink)
ssp729
São Paulo, Brasil
 
 
Posts: 6 since Mar 2017
Thanks: 0 given, 4 received

Trading VIX options in 2018 february you could have made a lot of money, but you could have lost all too...

Reply With Quote
 
(login for full post details)
  #77 (permalink)
ChrisDouthit
San Francisco CA USA
 
 
Posts: 40 since Jan 2020
Thanks: 2 given, 17 received

There is no limit to how much money you can make with options. If you’re on the buy side, you could make huge returns to get into the right situation. However, most buy side positions fail, so that’s a big if. With smart sell side investing, you could easily make 40% per year if your diversified and react quickly. You can then bang this out year after year.

Reply With Quote


futures io Trading Community Traders Hideout Options > How much can I earn with Options?


Last Updated on February 3, 2020


Upcoming Webinars and Events
 

NinjaTrader Indicator Challenge!

Ongoing
 

Journal Challenge w/$1,800 in prizes!

April
     



Copyright © 2021 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts