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At 09:53 PM 7/1/98 -0700, Mervin wrote:
>The real reason that I started this topic is not on fairness--it is on
>probability. In equity market, as long as the market goes up, everyone
>makes money and you don't have to worry about probability. In derivative
>market, since it is a zero sum game, you have to do better than 0.5
>probability of success to make money.
Not necessarily. The probability of your average trade being successful
is different from the probability of making money. You should worry
about both no matter what you trade.
>Actually, the task is much harder, considering commissions, bid-ask
>spread, and quality of the fill.
With OEX at least, none of these needs to be a problem. The task is
harder because the option has it's own beat and does not follow the
index exactly. This must be learned.
>So, from a trader's perspective, in long run, I wonder if it is too big a
>task to have a higher than 0.5 probability of success AFTER adjusting
>commisions, bid-ask spread, quality of the fill AND income tax.
If you don't have a higher than 0.5 probability of success trading,
why trade at all? Stocks have a long-term upward bias, but that's
for investors, not traders.
If your stuff gives you probability of success (making money over time)
you will probably make more money using leverage properly. Exactly how
to use leverage depends on how your stuff works. Either way you pay tax
on the gains. Buying stocks in a bull market is just another probability
as far as *trading* is concerned. Investing is different.
It's not too big a task for any of the reasons you stated. However, you
must learn how to trade the derivative well, in addition to making good
calls on the underlying. If you don't, it can be very dangerous. In the
end your question depends on the individual.
Wayne Moody
wlm95@xxxxxxxxxx
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