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RT's,
Here's a few thoughts on Jon Schiller's book, "The 100% Return
Options Trading Strategy".
Some interesting ideas on OEX trading can be found in this book.
However, Schiller does "candy coat" some of the concepts, and
some of the data in the book is contradictory or a bit misleading.
In the case of the CVSS covered write options strangle, Jon would
have you believe that they are safe as CD's. Not necessarily. On
page 152, Jon paints a rosy picture of exponential returns, enabling
the trader to turn $5,000 dollars into $89,623 over a 36 month
period. Whoops! Take a closer look: This run is based on Gaussian
probability and *assumes* a 90% winning percentile based on a
2 Sigma SD distibution. In real trading, it is very likely that these
levels will hold up no more than 70% of the time. (This is in line
with statistical evidence that markets trend strongly about 30% of
the time.)
As an example, please view the spread sheet given on Page 88
I was a bit suprised, as Jon claimed that only 5 of the losing
positions would have incurred max loss. Looks to me like *11*
of the losers would have incurred max loss, as they consumed
or eclipsed the entire 5 point spread of the short and long calls.
This means corrective action would have had to have been taken in
all instances. A different result from what Jon claims on pages 78
and 80. In simplistic terms the end result of
the trading term would have been:
Based on 1.82 differential in risk/reward (For every 100.00 you make
you lose 182.00)
33 trades/12 losers/21 winners = W/L Ratio: 63% (told you)
12 x 182 = (2184)
21 x 100 = 2100
Total Loss/Gain = (100)
We can of course assume that the trader would take action to
prevent the maximum loss, so he actually would have made
money. However, I don't think 100% returns are as simple as
Jon states.
As far as Jon's day trading Delta strategy, the description was
awfully simplistic. "Just watch the little RSI thingy, and when it
turns you can buy or sell, or just jump in when you see the big
programs buy or sell". To me, this can be equated to telling
someone to just "Buy low and Sell High". It isn't quite that
easy.
The thing that bothered me most about the book, was the fact that
nowhere was volatility mentioned. Volatility is the cornerstone of
the option trader. Without a firm grasp of its use, and a few trusty
vol indicators that work, an option guy can be in *real* trouble
very quickly.
Some of the ideas and practical trading info were good though. Mark
Jon Schiller's book as a place to *start* your learning process of
OEX trading. You will have to do a lot more reading if you want to
trade the OEX profitably. It's probably worth 50 bucks, but it's no
Holy Grail.
Walt Downs
CIS Trading
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