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Everyone knows that models are a proxy or estimation of the real world.
Calling Black-Scholes "bogus" is a bit harsh......it's definitely a good
estimate 90% of the time.
Risk-aware traders know the effect of the tail when shorting options....
Vic Niederhoffer knew it, he had been doing it successfully for
years........until one day, the tail "caught him".
> -----Original Message-----
> From: the_omega_man@xxxxxxxxxxxx [mailto:the_omega_man@xxxxxxxxxxxx]
> Sent: Wednesday, July 25, 2001 7:20 AM
> To: bjeckert@xxxxxxxxxx; omega-list@xxxxxxxxxx
> Subject: Re: Optionetics
>
>
>
> Many of the current options "strategies" taught by various
> options gurus are based on Black-Scholes notions of "volatility".
> I suggest caution in applying such option price "models".
> Stated simply, the assumption of Gaussian distribution of price
> changes is incorrect. Thus, the Black-Scholes model is simply
> bogus. (The more accurate price change distribution, with its
> infinite "fat tails", negates Black-Scholes as a valid model.)
>
> For a more complete discussion of this, see "Nonlinear Pricing",
> by Christopher May.
>
> The effect of applying the Black-Scholes assumption in practice
> is illustrated by the Long-Term Capital Management fiasco.
> Scholes and Merton (Black is deceased) used the Black-Scholes
> assumptions at LTCM. The models "worked" until a series of "fat
> tail" events occurred. Read "When Genius Failed", a book
> recently mentioned on this list, for more on this.
>
>
> Be careful out there...
>
>
> Good trading,
>
> OM
>
>
>
>
>
> At Thu, 19 Jul 2001 14:25:11 -0500, Brian Eckert
> <bjeckert@xxxxxxxxxx> wrote:
>
> >I attended the Optionetis workshop this week. A few of you expressed
> >interest in what I thought of it.
> >
> >They present a good, clear explanation of how to make low risk,
> high-reward
> >options trades. The trades are categorized, the risks are
> explained, they
> >teach you the exact way to place the order, etc.
> >
> >I have not started to trade using these techniques, but I am
> >encouraged. Their "calendar spread" technique averaged a 300% return on
> >equity last year.
> >
> >I was bothered by one thing. Throughout the seminar, they pitched their
> >other seminars, web site, newsletters, etc. I would have been a
> bit more
> >comfortable if the seminar came with a 4 week free subscription to their
> >news letter.
> >
> >A friend of mine attended. He recently purchased OptionVue. In
> looking at
> >the "platinum" service of their web site, he said that he would have
> >preferred using it to OoptionVue.
> >
> >You may also be wondering if I think George is honest, i.e., does he use
> >these techniques in his trading, or he is just hawking a system for the
> >sake of the money he can raise from these workshops. I think he really
> >trades them.
> >
> >Hope this helps.
> >
> >I'll let you know what success I have when I begin trading options.
> >
> >
> >
>
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