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Then AOL ran out of capacity and I was back to my 700 bucks after paying about 200 in commission to Bear. How did you pay 200 dollars in commissions on a 700 d

Then AOL ran out of capacity and I was back to my 700 bucks after paying about 200 in commission to Bear. How did you pay 200 dollars in commissions on a 700 dollar trade? How did you find work at an investment bank without being sufficiently savvy to realize that buying options on a credit card and then paying a gigantic commission is an absolute, guaranteed way to lose money over time? I'm genuinely confused here. At any rate, the only people profiting on derivatives are the market makers. And even they blow up eventually. (Example: Bear Stearns).

wagerlabs 16y ago
It's a vague recollection but I think options commissions at Bear -were- $100 per side back in 1995/96. Now, I didn't work in investment banking, I was a lowly programmer in the Securities Lending department. Also, you had to use Bear to trade if you were working for Bear. That said, I was green and didn't know anything about trading at that time. I found work by being good at what I do :D.
arthurdent 16y ago
How did you find work at an investment bank without being sufficiently savvy to realize? Is this deliberately intended to be disparaging? 1. There are plenty of people at investment banks whose principal function isn't to understand options. 2. What makes it so clear that buying options is a "guaranteed way to lose money over time". At any rate, the only people profiting on derivatives are the market makers. And even they blow up eventually. This is empirically false. There are a lot of people who make money in derivatives. Vol stat arb funds have performed very well over the last 5 years, dispersion has long been a popular trade. Bear stearns did not blow out in its marketmaking capacity. Typically the options traders that are said to "blow up eventually" are premium sellers, not buyers, which is in direct contradiction to your previous comment about option buyers being guaranteed to lose money over time. This is unnecessary and not really in the spirit of providing help to someone asking for advice. You either think he's full of BS and are trying to call him out or are just being rude. I think he sounds sufficiently accomplished and is trying to understand a new field. Don't discourage that. edit: had to look up how to properly italicize
- mynameishere 16y ago
  What makes it so clear that buying options is a "guaranteed way to lose money over time". Derivatives are mathematically zero sum minus costs. That's why. For traders in aggregate, they are a certain loss. Tack on leverage via credit cards, well... Is this deliberately intended to be disparaging Sort of. The guy needs to realize that he's capable of really stupid mistakes before he opens that fresh new brokerage account. 700 dollars is obviously nothing, but should be a valuable lesson, and not an optimistic one.
  - wagerlabs 16y ago
    1995 was 15 years ago. I advanced a bit since then.
    - mynameishere 16y ago
      I'm thinking that trading may be my best bet. I traded twice in ... ugh... 15 years or so. I advanced a bit since then. Yeah right. You might want to put your money in this: https://online.citibank.com/US/JRS/pands/detail.do?ID=SvgCDs https://online.citibank.com/US/JRS/pands/detail.do?ID=SvgCDs
  - deleted 16y ago
    [deleted]
  - arthurdent 16y ago
    Derivatives are mathematically zero sum minus costs. That's why. For traders in aggregate, they are a certain loss. 1. Fair enough. HSO makes the point that this is true for all financial transactions. So by your logic, investing in the stock market is also a guaranteed way to lose money over time. I don't think this is your contention, but this is really going to end up being a silly conversation if we have it. We'll just agree to disagree. 2. On a different note, in the interest of sharing something I learned recently. Options almost always trade at a volatility premium to their realized volatility. The reason for that is that vol traders want to price in the future uncertainty in vol. Derman writes about this a bit here by comparing it to interest rate term structures: http://ederman.com/new/docs/gaim-trading_volatility.pdf http://ederman.com/new/docs/gaim-trading_volatility.pdf 3. Also, historically (if that matters) selling vol is actually positive EV. BXM is a buywrite index and has outperformed the SP500 on a risk adjusted basis (http://ederman.com/new/docs/gaim-trading_volatility.pdf http://ederman.com/new/docs/gaim-trading_volatility.pdf) indicating that option vols have not been fairly priced. 4. Countering #4 is the popular Taleb wisdom about selling vol. Taleb is a net buyer and won. His general contention though is that kurtosis of the distribution is mis(under)priced. So from those 2, you might think that selling at the money options is positive EV and buying "tails" is positive EV. Of course the rest of the Taleb intuition is that we have no idea what the actual yield distribution should look like, so all pricing is out the window.
tullius 16y ago
Bear Stearns loved to hire autodidact college dropouts. "Under Greenberg’s control, Bear’s profits grew quickly. At its peak it employed almost 15,000 people. While most Wall Street firms preferred to hire Ivy Leaguers, Greenberg looked for people with “PSD” degrees, by which he meant “poor, smart and a deep desire to become rich.”"

wagerlabs 16y ago

It's a vague recollection but I think options commissions at Bear -were- $100 per side back in 1995/96. Now, I didn't work in investment banking, I was a lowly programmer in the Securities Lending department. Also, you had to use Bear to trade if you were working for Bear. That said, I was green and didn't know anything about trading at that time. I found work by being good at what I do :D.

arthurdent 16y ago

How did you find work at an investment bank without being sufficiently savvy to realize? Is this deliberately intended to be disparaging? 1. There are plenty of people at investment banks whose principal function isn't to understand options. 2. What makes it so clear that buying options is a "guaranteed way to lose money over time". At any rate, the only people profiting on derivatives are the market makers. And even they blow up eventually. This is empirically false. There are a lot of people who make money in derivatives. Vol stat arb funds have performed very well over the last 5 years, dispersion has long been a popular trade. Bear stearns did not blow out in its marketmaking capacity. Typically the options traders that are said to "blow up eventually" are premium sellers, not buyers, which is in direct contradiction to your previous comment about option buyers being guaranteed to lose money over time. This is unnecessary and not really in the spirit of providing help to someone asking for advice. You either think he's full of BS and are trying to call him out or are just being rude. I think he sounds sufficiently accomplished and is trying to understand a new field. Don't discourage that. edit: had to look up how to properly italicize

mynameishere 16y ago
What makes it so clear that buying options is a "guaranteed way to lose money over time". Derivatives are mathematically zero sum minus costs. That's why. For traders in aggregate, they are a certain loss. Tack on leverage via credit cards, well... Is this deliberately intended to be disparaging Sort of. The guy needs to realize that he's capable of really stupid mistakes before he opens that fresh new brokerage account. 700 dollars is obviously nothing, but should be a valuable lesson, and not an optimistic one.
- wagerlabs 16y ago
  1995 was 15 years ago. I advanced a bit since then.
  - mynameishere 16y ago
    I'm thinking that trading may be my best bet. I traded twice in ... ugh... 15 years or so. I advanced a bit since then. Yeah right. You might want to put your money in this: https://online.citibank.com/US/JRS/pands/detail.do?ID=SvgCDs https://online.citibank.com/US/JRS/pands/detail.do?ID=SvgCDs
- deleted 16y ago
  [deleted]
- arthurdent 16y ago
  Derivatives are mathematically zero sum minus costs. That's why. For traders in aggregate, they are a certain loss. 1. Fair enough. HSO makes the point that this is true for all financial transactions. So by your logic, investing in the stock market is also a guaranteed way to lose money over time. I don't think this is your contention, but this is really going to end up being a silly conversation if we have it. We'll just agree to disagree. 2. On a different note, in the interest of sharing something I learned recently. Options almost always trade at a volatility premium to their realized volatility. The reason for that is that vol traders want to price in the future uncertainty in vol. Derman writes about this a bit here by comparing it to interest rate term structures: http://ederman.com/new/docs/gaim-trading_volatility.pdf http://ederman.com/new/docs/gaim-trading_volatility.pdf 3. Also, historically (if that matters) selling vol is actually positive EV. BXM is a buywrite index and has outperformed the SP500 on a risk adjusted basis (http://ederman.com/new/docs/gaim-trading_volatility.pdf http://ederman.com/new/docs/gaim-trading_volatility.pdf) indicating that option vols have not been fairly priced. 4. Countering #4 is the popular Taleb wisdom about selling vol. Taleb is a net buyer and won. His general contention though is that kurtosis of the distribution is mis(under)priced. So from those 2, you might think that selling at the money options is positive EV and buying "tails" is positive EV. Of course the rest of the Taleb intuition is that we have no idea what the actual yield distribution should look like, so all pricing is out the window.

tullius 16y ago

Bear Stearns loved to hire autodidact college dropouts. "Under Greenberg’s control, Bear’s profits grew quickly. At its peak it employed almost 15,000 people. While most Wall Street firms preferred to hire Ivy Leaguers, Greenberg looked for people with “PSD” degrees, by which he meant “poor, smart and a deep desire to become rich.”"