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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. Fo

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
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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.

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.