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With that idea, for those that have size in their account and a good grasp of the market, selling equity options premium is probably the closest thing to "think like the house" as it can get.. Its a lot more forgiving as well especially if you have good money management. Even when I was a marginal trader years back(and that being a generous statement), I was selling option premiums with phenomenal success.. If you have account size, its something most should explore.. The probabilities are definatetly in your favor.. If you have patience, you'll likely outperform any would be fund manager of your $$ by managing your own $$ selling equity options premium. That's probably as close as you'll get with thinking like the house.. If you have a big account and you do this conservatively, you have much more control over your risk. I know that game well and am willing to share in that department with no reservations.. If you have account size, that's a great way to trade for a living, by selling equity options premium. Just PM me if you have questions about doing this I don't mind sharing at all.. However, you do still need to have a good grasp of the market though..
Absolutely, certainly a much better reward than buying calls and puts alone. This is great option for any trader to explore. And dependent on trader individuality. Such a wonderful profession this is, you can make money 100 different ways. And they are all correct. Not like physics or math, where you had only one answer. And I think beginning traders would do well to heed your gracious offer. I suspect they won't. BMt needs more people like you and less misanthropes like me!
Someone whose opinion I valued said the same thing a couple of years ago about selling premiums (he never did it himself, he didn't need to - his income from trading was enough). Beating fund managers isn't everyone's concern though. I set my guidelines where I would like my business to be in 5yrs, 10yrs, 20yrs. And then find the simplest way to getting her done. So far, playing futures in a single market, being flat at 4PM is a pretty decent way (and my risk is pretty well screwed down).
This reminds me of a funny story, I used to have a public blog. My live DOM was visible end of each day for results verification. I went on an outlier run for 3months. I had 2 net losing days and 3 net scratch days in that time (rest were all winners). There were readers who were aghast. They refused to believe it was true. Never mind live DOM or a broker statement.
Needless to say, the blog was taken down promptly, people thought that was outrageous. How can you possibly win for all but 5 days in 3months? I didn't want to break their hearts and tell them what kind of runs my mentors are on. It would have been akin to saying the sun rose in the west! If only they knew?
But beginning traders probably don't have the account size to make that gracious offer work. (Beginning directional traders generally would also be much better off trading stocks, but that requires much more capital than futures.)
And since you mention your mentors: one of the most difficult obstacles for beginning and intermediate traders is becoming your own mentor, because there is no other available. The closest most have come to an external mentor is an internet forum, and that's a poor substitute.
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Okay, most of the time I see both sides of the story. But on this one I must differ - my fourth account (after 3 complete blowouts) started with 23K. It started with YM, then ES then 6E and now is a combination of everything. So it is possible to succeed with smaller account sizes, I didn't use it to survive initially, so that helped. But over everything else, the one over riding quality that I think helped my attitude, my mental make up, my path so far was drive. I HAD to succeed, when ever I failed (plenty of times), and felt despair (several times) the one overriding quality that I managed to keep was drive. Everything else flowed from that.
Whether it trading at night, trying out several time frames, strategies, combinations, approaches, and what not...the one common denominator was drive. Without that nothing else came to fruition.
Rad and Lornz and I think someone else already pointed out the the most imortant nugget in this entire thread of how many have made it. I concur that trading has the same wining percentages as being an entrepreneur. It takes the same toll, the same passion and drive. And after that you need luck. So of course, I was lucky in many ways, but there is such a thing as enhancing your own luck.
The answer to me is very simple and makes complete sense. Why should the number of winning traders be any higher than that 5%? I think there are some ex-pit traders who have made some comments on this thread and on some of the other money management and psych threads about what they have seen in their careers. None of it is ground breaking. The rules of achievement remain the same in any performance activity (and indeed in any human endeavor). In some cases they are amplified because of their immediate psychological effect on ourselves in a rather brutal and destructive way when we fail (such as in trading). There is no shortage of failed business stories that would say how close they came to utter defeat, how damaging it was to their lives and their families.
Just because it is so ridiculously easy to start trading for ANY yahoo, we all think we can make it. But does that entitle us to any success?
I am willing to bet if you read every single psych or MM thread, there would be nothing new on this thread and time and time and time again, you would read about some guy (like moi) yapping about the same abstract things as risk control, behavior, mind over matter blah blah blah......
And a newbie will wonder,,,what the hell is the matter these guys? Why can't they write a simple answer? I realized the real answer to that only after I started succeeding with the same indicator that I was failing with for 3 years.
The other thing I just realized is how self destructive we are, how we sabotage ourselves. How we will say little things, even unknowingly that will create a negative energy about all our efforts. For this, I blame society completely...our parents...our friends, our families...our social mores above everything else. With all the good things that a being a social entity can bring...I believe in a solo performance endeavor it is very very damaging.
Ever seen a tiger hunting?
You may laugh at this, I have to distance myself from social interaction to be free of any thought contamination in every thought process I have. It makes for an interesting existence, that most would pooh pooh. And I agree, but its a choice I have made, whether right or wrong I will live with its consequences. It may be extreme and unnecessary to you, it works like a charm for me.
Enough!
I am sure you know all this, nothing new or groundbreaking....no new magic button here! Back into my hole in the ground....and stop posting incessantly like this....
If anything, bookmark stuff that BM, Lornz, Fat Tails, Cory, Tigertrader, Jstnbrg and others (sorry if I missed your handle) write about. I do.
most traders here and in other camps won't understand nor appreciate the concept of quantum tradings you and some others were so graciously willing to share but.... ah las.... how would most traders unfamiliar with highly streamed line tradings be able to understand and appreciate your so generous offerings.
however, there are many here, my humble self included, would be more than delighted to watch, listen, learn and digest, if you still have the drive, energy and motive to duplicate your prior efforts here for the elite members segment.
however, most established traders are already pretty much setup and are not able to free up much unengaged time to do other charitable endeavors; neverthless, if you could, it would be most appreciated truly.
wishing you and yours a very merry christmas and also wishing all the traders a very successful TIGER year as well.
The bulk of my funds are tied up rt now otherwise I would. Currently in my account size, I do better trading. If my funds were free, I would leverage the margin this way depending on your account size.. buy some bonds to collect interest or any other stable interest bearing vehicle and use the margin to sell puts on your strongest volatile companies like AAPL/GOOG and etc.. Sell them when at a time you would buy them cuz it came off into support along with the market and etc.. then sell them as far out of the $$ as the premium will pay.. and scale several execution prices but make sure you don't over margin just in case.. If the brokerage account allows and I have not used it this way, you may even be able to use the same margins to trade your futures account.
Option premiums are subject to fear and greed the same way so can expand and contract in an exagerated way as price gets volatile.. Usually, you shud have a limit order and hope you get hit when price gets volatile. When the price bounces strongly, you can cover them the same way with limit orders.. You trade them the same way but your edge is enhanced though the returns are less agressive.. 90% of options buyers lose $ and you get to be part of that 90% that makes $ if you play this game right.
Broker: Advantage Futures, Ninja/TT and InvestorRT/IQFeed.
Trading: Treasury futures
Posts: 312 since Nov 2010
Thanks Given: 194
Thanks Received: 912
Playing the game right includes making a big allowance for fat tails events. On Black Monday 1987, options market makers at the CBOE who were short calls got killed when the premium of those calls exploded even though the market was plummeting, because implied volatility was expanding even more. Nassim Taleb in "Fooled by Randomness" claims he has made his living being long option premium in anticipation of fat tails events. The problem with the covered call or naked put strategy is that while you can make money most of the time, the very few times you lose money can still wipe you out. You need to look at the expected value of the strategy as a whole, which may be mathematically impossible (if the nature of the probability distribution of the underlying price moves is unknown/unknowable).
I wonder if it might be possible to anticipate a bit when fat tails events are more likely to occur. Black Monday did not really come out of the blue, the market was way overbought prior to Monday and had sold off sharply the previous Friday. In hindsight, the market was set up for some kind of crash (and I had actually made a $100 bet with another trader, a former equities trader who had previously worked for John Mulheren, the previous Friday that the Dow would see 1700 before it saw 2700, but I didn't know I'd collect the next trading day). In another example, though I wasn't trading and wasn't even watching, the market was already very soft prior to the flash crash. It seems that the ingredients would be a strong directional move prior to the fat tails event possibly complicated by poorly understood but widely used innovation in the marketplace. Certainly both conditions were there both in 1987 and in 2010, the first being portfolio insurance and the second being algorithmic high frequency trading.
"You don't need a weatherman to know which way the wind blows..."
Its true you can get caught on the wrong side at the wrong time and that's why its important not to over-leverage your margin and still know how to trade. Selling Option puts is not a substitute for good trading but an odds enhancer nevertheless. In the 87 crash, the put sellers were likely still better off than the long futures traders and even the equities holders. If they sold them far out the $$ and did not over margin, the market is likely to retrace enough to let you out with less damage than the futures long holders and the equities holders.
Anticipating these kinds of moves is always tricky and comes back your ability as a trader to read the market and put the pieces together. You were in the business and you had a good sense that it was likely not the best time to sell naked puts especially aggressive naked puts in Oct87, but had you done so, you were still better off than buying equities and long the futures.. With size in the account, the returns can become worthwhile cuz the risk is reduced.
I anticipated a small fat tail this year when the SPX bounced nicely from a sell off but the DAX did not.. As the SPX was coming back down, I figured it was likely to take the DAX below their annual lows and this may drag the SPX down further.. everything happened just as I suspected but it bounced back just as fast.. I also saw the same thing in the housing market in 2006 cuz interest rates were at historic lows and not likely to get lower, housing was at peak affordability and the economy was softening.. In addition, housing inventories and sales times was just beginning to come off.. Many Real Estate brokers saw that except the ones that want to sell you houses.. I think when you're in the business and you stay tuned to it, odds are good you have some sense about these things, but ofcourse there are no guarantees though..
