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Very true, and I generally strongly share your preference for the simple
binary decision in futures. That said, deep in the money options, which most
traders eschew for lack of leverage, offer the opportunity to do a binary
trade at potential trend reversal points where both volatility expansion and
delta work for you.
Earl
----- Original Message -----
From: "Norman Winski" <nwinski@xxxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Thursday, June 12, 2003 10:07 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. 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
----- Original Message -----
From: dom1_1998
To: 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 are
regardless of what the BS model says. Like you said, over price for
you, under price for me.
To avoid this guessing game, I wonder if the best method is buy/sell
deltas 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 the
options and a realistic way of acquiring the numbers to be used in the
variables in option pricing. Based upon your reply you are basing
your bid/offer upon someone else's information, bid/offer. The
greatest risk outside of price movement in trading options is
volatility risk. So you had better have a handle on finding the
volatility of the underlying and being able to compare it with the
implied volatility of the options. To know whether the bids and
offers are over or under valued is imperative in trading options. One
thing to remember is that your overvalued options might be my under
valued option. It is all in the numbers used in the option pricing
variables. 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 inside
bid / offer. I want to ensure that if I raise / lower the bid / offer
that I do so in such a way the honors the minm price increment rules.
>
> Regards,
> Brendan
> -----Original Message-----
> From: Ira [mailto:mr.ira@x...]
> 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 and
has nothing to do with you, other then the increments of bid and
offer. There is also a maximum spread between bid and offer that can
be made in the crowd. If the bid is $3 then the minimum offer in the
crowd, by a market maker is $3 and $3.10. That doesn't stop you from
putting in an offer or bid at $3.00 or $3.10. If you put in your offer
at $3.10 you are competing with market makers and floor brokers that
are holding offers. It used to be, that if you tell your broker that
you want your offer in the book, that book orders were filled before
floor orders and they were filled in the order booked. What if the
bid/offer in the crowd was $3.00 at $3.50? You can put a bid or offer
anywhere in the middle in $.10 increments. Whether you would get
filled or not is another matter, but if your offer was at $3.30 it
could read $3.00 at $3.30 or a market maker could rest upon your offer
and offer at $3.20 knowing that your offer was there if the price of
the underlying starts to rise. When you cancel your offer the market
might very well go back to $3.00 at $3.50. Your offer was the market
makers stop loss.
>
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