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Hey Mr Murray,
This is an interesting question. Look at some rough rules of thumb that
some brokers may confirm:
90% of Futures Traders Lose in the long run - 10% Break even or win
60-70% of Share Traders Make Money in the Long run
90% of all Put Options expire worthless.
The percentage is less for calls but probably around 60%.
Therefore:
Sellers of options generally make money.
The professional players are options sellers and they hedge their books.
Buyers of options generally lose money.
Buyers of options are generally the public.
When the public sells options it is usually covered call writing over
stocks held.
Why are these out of kilter?
1. Most share Traders buys shares only
2. There is a long term upward bias in share market
(This is why most stock brokers never use the S(Sell) or B(Bear) word
because they know
the long run the stock someone has just bought on a high will probably
go through the highs
again)
3. Many stocks pay dividends - you get paid appearance money. In Australia
that appearance money is tax advantaged.
4. Share Traders generally buy shares with money they have. Futures
Traders get control (or
lack of it) by paying a small deposit. Leverage is much greater in
futures.
Ergo Share traders are less likely to be scared out of positions or cut
their losses.
They will often hold for years until the share goes off the board or
gets to breakeven.
5. Share traders are generally better capitalised and can hold on and hope.
6. Holding on and hoping in futures is tantamount to financial suicide
because of the leverage.
over a wild beast
7. Buying Options means you better have a really good view on direction and
volatility.
Options buying even with the right view can end in breakeven because
time gets you.
8. You can make much more money per $ you own by trading futures or options
because of
leverage. This attracts more gamblers to the futures and options
markets and helps
increase the overall percentage of losers - because to be successful in
trading you have
to be disciplined and consistent and have rules. Gamblers don not
believe in this.
9. You can lose a lot more money per $ you on in futures.
I trade mainly in futures. I have only had one losing trade in shares over
14 years and 2 in options (only 3 trades). Wish I could say the same for
futures! But I am very rigorous in cutting my losses and letting profits
run.
If you have the capital to trade shares then the percentages are with you
IN THE LONG RUN, if you trade from the long side.
Regards
David Hunt
http://homepages.tig.com.au/~adest
----------
: From: w.murray <w.murray@xxxxxxxxxxx>
: To: realtraders@xxxxxxxxxxxxxx
: Subject: Stocks vs Commodities
: Date: Tuesday, December 30, 1997 6:49 AM
:
: I would appreciate your opinion on why you trade stocks vs commodities or
: vice versa. Also if you trade options, or dont trade options, on stocks,
or
: commodities, please indicate your reasoning for this stategy also.
Thanks.
:
:
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