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> Being net positive 80% of all days traded with all your winners and losers falling in a relatively tight distribution -- luck can't create highly specific, re

by nandemo 12y ago

> Being net positive 80% of all days traded with all your winners and losers falling in a relatively tight distribution -- luck can't create highly specific, repeated outcomes like that. Yes, it can. E.g. you could sell deep out-of-the-money puts and collect a $1 premium day after day, say 99% of all days. Until one day a {terrorist attack in the US, humongous earthquake in Japan} happens and you lose more money than you ever made.

jpatokal 12y ago
Obligatory case where exactly that happened, at a cost of $1.4 billion: http://en.wikipedia.org/wiki/Nick_Leeson#Downfall http://en.wikipedia.org/wiki/Nick_Leeson#Downfall
mlrtime 12y ago
We call it picking up pennies off a train track.
peterkto 12y ago
I just can't stay out of the debate no matter how much I try to. I am as well-rehearsed in financial history as anyone. I have read about LTCM, Nick Leeson (I even watched the movie), etc. In these situations there was so much size being used that if any unexpected squeeze scenario occurred, those guys would move the markets and cause a horrible chain reaction. I understand on the surface this totally looks like I'm trading in a "eat like a chicken, shit like an elephant" type of fashion. If I were in your shoes and I read "guy made x, x, x consistently and lost 20x one time!!!" I'd be thinking along the same lines. The difference is, I had more control of my outcome. It's hard to prove this and you won't totally believe me unless you are also a day trader who grinds it out and has a feel for intraday liquidity and slippage (particularly on the otc/pink sheets). I wasn't trading such a large size where I would move the market if I was squeezed out. The risk distribution of intraday scalps is not at all similar to writing naked options with unlimited loss. It's like this: normal trade: entry signal occurs. get in. exit signal occurs. get out. the trade in particular: exit signal occurred and i chose to ignore it and keep scaling in. would there have been awful slippage? yeah but it would have manageable. in the heat of the moment on the largest loss ever, 10-15c slippage on a $4 stock massive size feels like the end of the world but it's better than riding it down 50c or a point.
quink 12y ago
But you don't understand. My special variety of the Martignale system works to beat the wheel in the long run. Guaranteed!
encoderer 12y ago
Which is why it's good to have net-short deltas (when beta weighted against the SPY), to protect against tail risk. It's also why it's important to trade small, and have a large number of uncorrelated positions. You can go on believing that nobody makes money doing this sort of thing over the long term. That's fine. But it's definitely not true. Derivatives have no more risk than the underlying. What makes them more risky is the leverage. Selling 1 option w/ a 0.5 delta is no more risky than selling 50 shares of the underlying.
- nandemo 12y ago
  My comment is an example of why the reasoning below incorrect. My comment does not say "it is impossible to make money by trading stocks/derivatives". > Being net positive 80% of all days traded with all your winners and losers falling in a relatively tight distribution -- luck can't create highly specific, repeated outcomes like that.

by nandemo 12y ago

jpatokal 12y ago

Obligatory case where exactly that happened, at a cost of $1.4 billion: http://en.wikipedia.org/wiki/Nick_Leeson#Downfall http://en.wikipedia.org/wiki/Nick_Leeson#Downfall

mlrtime 12y ago

We call it picking up pennies off a train track.

peterkto 12y ago

I just can't stay out of the debate no matter how much I try to. I am as well-rehearsed in financial history as anyone. I have read about LTCM, Nick Leeson (I even watched the movie), etc. In these situations there was so much size being used that if any unexpected squeeze scenario occurred, those guys would move the markets and cause a horrible chain reaction. I understand on the surface this totally looks like I'm trading in a "eat like a chicken, shit like an elephant" type of fashion. If I were in your shoes and I read "guy made x, x, x consistently and lost 20x one time!!!" I'd be thinking along the same lines. The difference is, I had more control of my outcome. It's hard to prove this and you won't totally believe me unless you are also a day trader who grinds it out and has a feel for intraday liquidity and slippage (particularly on the otc/pink sheets). I wasn't trading such a large size where I would move the market if I was squeezed out. The risk distribution of intraday scalps is not at all similar to writing naked options with unlimited loss. It's like this: normal trade: entry signal occurs. get in. exit signal occurs. get out. the trade in particular: exit signal occurred and i chose to ignore it and keep scaling in. would there have been awful slippage? yeah but it would have manageable. in the heat of the moment on the largest loss ever, 10-15c slippage on a $4 stock massive size feels like the end of the world but it's better than riding it down 50c or a point.

quink 12y ago

But you don't understand. My special variety of the Martignale system works to beat the wheel in the long run. Guaranteed!

encoderer 12y ago

Which is why it's good to have net-short deltas (when beta weighted against the SPY), to protect against tail risk. It's also why it's important to trade small, and have a large number of uncorrelated positions. You can go on believing that nobody makes money doing this sort of thing over the long term. That's fine. But it's definitely not true. Derivatives have no more risk than the underlying. What makes them more risky is the leverage. Selling 1 option w/ a 0.5 delta is no more risky than selling 50 shares of the underlying.

nandemo 12y ago
My comment is an example of why the reasoning below incorrect. My comment does not say "it is impossible to make money by trading stocks/derivatives". > Being net positive 80% of all days traded with all your winners and losers falling in a relatively tight distribution -- luck can't create highly specific, repeated outcomes like that.