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All very good points Norman.
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
Norman
Winski
To: <A title=realtraders@xxxxxxxxxxxxxxx
href="">realtraders@xxxxxxxxxxxxxxx
Sent: Thursday, June 12, 2003 9:07
AM
Subject: [RT] TO OPTION OR NOT TO
OPTION
Dom1,
I hope you don't mind my jumping in.
My thinking is that the more variables there
are, the more variables there are with
which you have to compete or beat professionals at. <FONT
face=Arial size=2>Options are a good example of a sophisticated vehicle which
begs for the best state of the art computer and
mathematical models. I was a market maker on the CBOE for 12
years. I know enough to know that it is very difficult to compete with
the floor professional in options, which is why I now seldom trade options in
favor of the more simplistic futures contracts. Futures represent
mostly a binary decision, will it go up or down, to buy or to sell, whereas
options represent a plethora of variables and required decisions. The greater
the number of variables, the greater the chance that I will make a bad
decision or judgement. So, unless you have a staff of people to run
the computers, do the research, and the latest option
theoretical math model, you are probably gonna get your butt kicked. It
is hard enough to make money in the market via getting the underlying market
right without having to worry about illiquid options causing wide bid - asks,
implied volatility, the history of option valuation, deltas, thetas and the
rest of the Greek alphabet. Bottomline, I am a strong believer in KEEP
IT SIMPLE and options don't fit my KEEP IT SIMPLE model. That's my
two cents.
Regards,
Norman
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
dom1_1998
To: <A
title=realtraders@xxxxxxxxxxxxxxx
href="">realtraders@xxxxxxxxxxxxxxx
Sent: Thursday, June 12, 2003 11:42
AM
Subject: Re: [RT] Minimum price
increment
On one hand I agree about calculating option prices via
the BS method.On the other hand I wonder how much of a difference does
it really make.The MM decides the B/A prices so they're going to be
what they areregardless of what the BS model says. Like you said,
over price foryou, under price for me. To avoid this guessing
game, I wonder if the best method is buy/selldeltas of one to mesh with
the underlying.What do you
think?Dominick--- In
realtraders@xxxxxxxxxxxxxxx, "Ira" <mr.ira@xxxx> wrote:> I hope
that your system includes the theoretical price of theoptions and a
realistic way of acquiring the numbers to be used in thevariables in
option pricing. Based upon your reply you are basingyour bid/offer
upon someone else's information, bid/offer. Thegreatest risk
outside of price movement in trading options isvolatility risk. So you
had better have a handle on finding thevolatility of the underlying and
being able to compare it with theimplied volatility of the
options. To know whether the bids andoffers are over or under
valued is imperative in trading options. Onething to remember is that
your overvalued options might be my undervalued option. It is all
in the numbers used in the option pricingvariables. Good luck in your
search. Ira.> ----- Original Message -----
> From: Brendan B. Boerner > To:
realtraders@xxxxxxxxxxxxxxx > Sent: Thursday, June 12,
2003 7:27 AM> Subject: RE: [RT] Minimum price
increment> > > Ira, thanks for the
explanation.> > I'm asking because I'm developing
a system to remain on the insidebid / offer. I want to ensure that
if I raise / lower the bid / offerthat I do so in such a way the honors
the minm price increment rules.> >
Regards,> Brendan>
-----Original Message-----> From: Ira
[mailto:mr.ira@xxxx]> Sent: Thursday, June
12, 2003 9:10 AM> To:
realtraders@xxxxxxxxxxxxxxx> Subject: Re:
[RT] Minimum price increment> >
> The minimum bid is for market makers
standing in the crowd andhas nothing to do with you, other then the
increments of bid andoffer. There is also a maximum spread between
bid and offer that canbe made in the crowd. If the bid is $3 then
the minimum offer in thecrowd, by a market maker is $3 and $3.10.
That doesn't stop you fromputting in an offer or bid at $3.00 or $3.10.
If you put in your offerat $3.10 you are competing with market makers
and floor brokers thatare holding offers. It used to be, that if
you tell your broker thatyou want your offer in the book, that book
orders were filled beforefloor orders and they were filled in the order
booked. What if thebid/offer in the crowd was $3.00 at
$3.50? You can put a bid or offeranywhere in the middle in $.10
increments. Whether you would getfilled or not is another matter,
but if your offer was at $3.30 itcould read $3.00 at $3.30 or a market
maker could rest upon your offerand offer at $3.20 knowing that your
offer was there if the price ofthe underlying starts to rise. When
you cancel your offer the marketmight very well go back to $3.00 at
$3.50. Your offer was the marketmakers stop loss. >
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