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The facts, I believe, on the options market is that the options market
makers make tons and tons of money. I heard that last year and the year
before they made several billion on the internet options. Just look at the
way the options are traded. 50 cent to 2 dollar spread. If the market
starts heading down/up in the morning the options market makers will not
open the market for the first half hour, to maximize their profits/minimize
their loses. The market makers charge a 10% to 20% premium on options on I
would submit an educated guess of 75% of the time in the morning. (Watch
the price change from 9:30 to 10:00, I never buy options before 10:00
because of this). When the market is headed up they charge a premium on the
calls, and the minute the market reverses they dump the price on the calls,
to keep the suckers locked in. Same with the puts/market headed down.
(That is why you can make more selling options than buying, with much more
risk). You can buy a call at 5 X 5 1/8 in a quite market, the minute the
market starts moving, the price changes to 4.75 to 5.25. The market makers
don't make the 200%+ that a trader can, but they make that 5% to 15%
hundreds/thousands of times per day, so the 200%+ is peanuts to them.
Kohath
----- Original Message -----
From: THE DOCTOR <droex@xxxxxxxxxxxx>
To: Chris Jackson <chrisj@xxxxxxxxxx>
Cc: BrentinUtahsDixie <brente@xxxxxxxxxxxx>; Group, Real Traders 2000
<Realtraders@xxxxxxxxxxxxx>; <realtraders@xxxxxxxxxxxx>
Sent: Thursday, July 29, 1999 1:48 PM
Subject: Re: Exits/Options
> An options pricing generates a price which - by definition -creates equal
> probability for the buy and the seller. The concept of an options model
is to
> calculate a value which if you traded at with an infinite number of
repetitions
> would balance out exactly between buyer and sell.
>
> What most people confuse is the concept of how frequently buyers/sellers
will make
> money. Sellers of options will be profitable more frequently than buyers
... but
> sellers can only earn a finite premium and can lose a multiple of the
premium they
> might earn. Buyers will be profitable on less occasions than sellers, but
buyers
> can only lose their premium and can earn a multiple of their invested
premium.
>
> Buyers will make money when actual volatility exceeds implied(as has been
the case
> in the US equity market for much of the last 5 years). Sellers will
profit when
> actual is less than implied(a condition you would expect to exist most of
the time
> .... in effect about 2/3 of the time the market or stock should make a 1
sigma
> move or less over the life of the option). The challenge is that you only
really
> get the balance between buyers and sellers when you sample a large
population of
> trades over a long period of time.
>
> The reality as to if you should buy or sell is based both on you
expectation of
> direction(bullish, bearish or neutral)and your view of volatility over the
expected
> life of you trade.
>
> Chris Jackson wrote:
>
> > I have just read the new options book by William Gallagher - The Options
Edge.
> > He did
> > an empirical study of actual traded options prices ( 1 on 15 futures
> > markets) and it came out that there was no clear bias for option writers
or
> > buyers -
> > something of a shock even to him.
> >
> > The positive side of that is that there does not appear such a bias to
overcome
> > when
> > buying options i.e. makes buying the right kind of options a reasonable
> > proposition.
> >
> > BrentinUtahsDixie wrote:
> >
> > > If you know you have a weekness exiting trades then you should
emphasize
> > > that and vice versa.
> > >
> > > This is overworking a fine point regarding entrys and exits but one of
the
> > > things that happens when learning about trading is that someone comes
along
> > > and makes a statement that sounds true on the surface and then many
others
> > > pick it up and go around stateing it as fact when it may not be
factual at
> > > all. Things like "90% of all options expire worthless" and "the market
is
> > > never wrong". You should question these kind of statements rather then
> > > parroting them. If you find youself doing this without questioning and
> > > seriously thinking about the issue then you are also likely to be a
trader
> > > that is always jumping in the market with the wrong crowd at the wrong
time
> > > just because someone said it was good idea, not because you did your
own
> > > research and developed your own skill at timming your entrys.
> > >
> > > Brent
>
>
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