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>He always stays protected using credit spreads
>as the primary high probability strategy.
For indices:
I would think that playing a credit spread above and below the underlying is
a good strategy.
The 2 major problems I've encountered with that approach are:
1) How far above and how far below the underlying do you go?
I've found that being 1 std dev away is not enough and therefore too risky,
and 2 or more std dev away is just too far and the net premiums are not that
high. I've tried 1.5, 1.75 with mixed results. Option pricing is a lot more
efficient these days than in the past.
2) A lot of times you just don't get filled. I've noticed the option makers
on the opposite side of the trade will give up a lot of premium for volume.
I remember one time I placed a 2 contract spread order right in the middle
of a $ 2.00 bid/ask spread. My order was not filled until close to the end
of the session. In between, I saw lots of high volume orders for my long
side filled at the bid or lower (institutional orders?). Occasionally, there
are small orders filled but always at ask.
3) High commission costs as a %age of the total trade since there are 4
commission costs for 2 positions.
I think the ODDS system is not perfect but it can be tweaked to suit your
particular style.
Thanks,
Marshall
-----Original Message-----
From: mslist [mailto:mslist@xxxxxxxxxxxxxxx]
Sent: Friday, August 11, 2000 6:56 AM
To: metastock@xxxxxxxxxxxxx
Subject: RE: Don Fishback
> I believe the ODDS system, assumes stock/option price behavior is in
> statistical terms normally distributed.
>This is not the case in real life. A lot of the buying/selling option
>decision depends on your bias in the future direction of the stock/index. I
>do not believe the ODDS system can account for that bias. In fact, I'm not
>sure that it's possible to model that kind of stock/index behavior in the
>first place. I think that once the trade is on, subsequent follow-up action
>is just as important (i.e take/lock-up profits or repair/unwind a bad
>trade). I think that using implied volatility, historical volatility, time
>decay to your advantage and having a clear plan are your best tools. My 2
>cents worth.
After recently attending one of the ODDS seminars, I found that Don only
uses the high probability method on stock indexes like the OEX and SPX. He
even showed us a chart of the actual distribution of the index verses the
theoretical distribution. The actual distrubution makes the high
probability trades work better than theoretical. He also doesn't sell any
naked options. Nor would I. He always stays protected using credit spreads
as the primary high probability strategy.
You are right about stocks not following the normal distribution. He uses a
totally different strategy for stocks.
All in all, I also believe he is one of the good guys.
If you figure that you can lose alot more than the price of his seminar real
fast in the option market, I think it is a good value. I lost half my
account right off the bat when I started trading options. Don spends about
half the time talking about what not to do.
My 2 cents,
Michael
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