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Jack,
there is a difference in opinion: some people consider "Texas Hold' em Poker" a gambling.
For others (like the State of California), the poker is a game of skills.
I am somewhere in the middle: in poker there is a lot of randomness but by the study of
the game, you can "push" probabilities of winning in your favor; in slot machines -- these
probabilities are built-in and cannot be changed by a player and are set in favor of a
casino.
I would compare poker playing to trading a "trend following" futures system: a lot of
random market data but by studying the data, by having a correct "money management" system
(a scheme for computing a number of contracts to trade), etc. you can "push" probabilities
in your favor. In poker now, with help of software you can save your hand histories and
backtest your strategies, the same situation we have in futures trading for many years.
I would like to declare the "selling of deep-out-of-the-money options" a strictly a game
of skills and understanding of statistical properties of market returns etc. If you follow
my recipe than there is NO 1% of "sheer terror". All cases of "extreme" market conditions
(that bankrupt gamblers like Victor N.) are handled with "business as usual" attitude.
So, you don't need any luck (but you need badly a math knowledge of markets), and there is
no fear involved in market extremes ("fat tail" events), just a simple hedging invoked
with a proper timing.
DC
----- Original Message -----
From: jack zaner
To: DC ; Omega-List
Sent: Wednesday, July 05, 2006 1:16 PM
Subject: Re: Implied Volatility for Futures Contracts
When I owned an FCM we used to have a saying about option premium sellers.
They ate like birds and crapped like elephants. They also scared the devil
out of us. Their trading was 99% boredom and 1% sheer terror- - especially
those who had it all figured out. Good luck to you.
Regards, Jack.
----- Original Message -----
From: "DC" <dc010225@xxxxxxxxxxxxx>
To: "Omega-List" <omega-list@xxxxxxxxxx>
Sent: Wednesday, July 05, 2006 6:47 AM
Subject: Re: Implied Volatility for Futures Contracts
> Howard,
>
> I am selling only options on futures at MAN Financial. My next goal is to
develop options
> selling for E-Mini Stock Index Futures (e.g. Russell 2000) at
TradeStation Securities.
> For this reason, TS 8.1 has to correctly compute the implied volatility as
explained in my
> prior posting. The implied volatility topic is the focus of my postings,
all my other
> comments are secondary.
>
> Under normal market conditions (Gaussian/Normal distribution of returns),
it is relatively
> easy to develop a selling strategy with very reasonable gains. However,
this is not
> enough, and you should not start selling options unless you study in
details so called
> "extreme" markets conditions.
>
> These conditions happen when market returns are beyond of 3 standard
deviations, at the
> "fat tail" region of distribution curve (markets behave closely to the
inverse power
> laws). I recommend that you create an "inventory" of these events, study
them, and then
> develop a simple and effective hedging strategy for all cases when market
prices get to
> close to your striking price. Hedging will costs you money, and will
decrease the gain for
> the particular month. In very rare cases, you will experience a very small
drawdown
> (1-2%), that can be recovered the following month. So far, no losing month
for me in spite
> of several "fat tail" events.
>
> If given futures market doesn't support well enough your hedging strategy
(i.e. it is
> illiquid under extremes) then don't dare to trade it. Otherwise you will
end up as famous
> Victor N.
>
> DC
>
> ----- Original Message -----
> From: HBernst963@xxxxxxx
> To: omega-list@xxxxxxxxxx
> Sent: Tuesday, July 04, 2006 8:27 PM
> Subject: Re: Implied Volatility for Futures Contracts
>
>
> In a message dated 7/4/2006 11:00:54 AM Eastern Standard Time,
dc010225@xxxxxxxxxxxxx
> writes:
> I can accurately compute synthetic options prices, and greatly simplify
the
> backtesting of my option strategies: selling the deep-out-of-the-money
options for about
> 30% annualized gains and with zero drawdowns.
>
> DC
>
> Are you selling options on individual stocks as well as commodity futures?
You say zero
> drawdowns but there can be so called 'black swan' events such as a stock
being bought out
> where it jumps 30-40% in a day; a freeze in Brazil causing coffee prices
to soar, Iran
> could blockade the Persian Gulf and crude oil soars, as examples. Are you
saying that you
> have never had a losing trade?
>
> If you are looking for a program where you can find implied volatility on
both stocks and
> futures, OptionVue software is what I use and recommend.
www.optionvue.com
>
> Thanks for replying,
>
> Howard Bernstein
>
>
>
> --
>
>
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