|
PureBytes Links
Trading Reference Links
|
Just to add another 2 cents worth (from someone who was in that mix at the
time). When the coefficients of the spreads broke down, it was too late to
cover, and the tracking of positions left a lot to be desired. Even the
lenders (who provided much of the leverage) didn't know what to do, except
close everything which would have created an unacceptable level of disorder
in the markets. The fiasco had very little if anything to do with the BS
model.
-----Original Message-----
From: M. Simms [mailto:prosys@xxxxxxxxxxxxxxxx]
Sent: Wednesday, July 25, 2001 9:03 AM
To: omega-list@xxxxxxxxxx
Subject: RE: Optionetics
re:".. The effect of applying the Black-Scholes assumption in practice is
illustrated by the Long-Term Capital Management fiasco."
not true omega man.......their strategy was based on "reversion to mean" of
volatility.
In other words, their backtesting was done with fairly consistent and
confined waves where volatility would rise, then fall.
All they did was ride these waves...and it was tremendously
successful......until a really large one hit them.
IT WAS THEIR FAILURE TO :
1) ACKNOWLEDGE THE PROBABILITY OF A REALLY BIG WAVE
2) IMPLEMENT A CIRCUIT-BREAKER STRATEGY
THAT WAS THEIR UN-DOING, NOT THE MODEL.
> -----Original Message-----
> From: the_omega_man@xxxxxxxxxxxx [mailto:the_omega_man@xxxxxxxxxxxx]
> Sent: Wednesday, July 25, 2001 7:26 AM
> To: bjeckert@xxxxxxxxxx; omega-list@xxxxxxxxxx
> Subject: Re: Optionetics
>
>
> At Thu, 19 Jul 2001 14:25:11 -0500, Brian Eckert
> <bjeckert@xxxxxxxxxx> wrote:
>
> >>I attended the Optionetis workshop this week. A few of you expressed
> >>interest in what I thought of it.
>
>
> I noticed that John Lothian asked you whether the "results" of
> some strategies presented at the workshop were hypothetical or
> actual. Did you reply to his question?
>
> Many of the current options "strategies" taught by various
> options gurus are based on Black-Scholes notions of "volatility".
> I suggest caution in applying such option price "models".
> Stated simply, the assumption of Gaussian distribution of price
> changes is incorrect. Thus, the Black-Scholes model is simply
> bogus. (The more accurate price change distribution, with its
> infinite "fat tails", negates Black-Scholes as a valid model.)
>
> For a more complete discussion of this, see "Nonlinear Pricing",
> by Christopher May.
>
> The effect of applying the Black-Scholes assumption in practice
> is illustrated by the Long-Term Capital Management fiasco.
> Scholes and Merton (Black is deceased) used the Black-Scholes
> assumptions at LTCM. Read "When Genius Failed", a book recently
> mentioned on this list, for more on this.
>
>
> Be careful out there...
>
>
> Good trading,
>
> OM
>
>
>
> At Thu, 19 Jul 2001 14:25:11 -0500, Brian Eckert
> <bjeckert@xxxxxxxxxx> wrote:
>
> >I attended the Optionetis workshop this week. A few of you expressed
> >interest in what I thought of it.
> >
> >They present a good, clear explanation of how to make low risk,
> high-reward
> >options trades. The trades are categorized, the risks are
> explained, they
> >teach you the exact way to place the order, etc.
> >
> >I have not started to trade using these techniques, but I am
> >encouraged. Their "calendar spread" technique averaged a 300% return on
> >equity last year.
> >
> >I was bothered by one thing. Throughout the seminar, they pitched their
> >other seminars, web site, newsletters, etc. I would have been a
> bit more
> >comfortable if the seminar came with a 4 week free subscription to their
> >news letter.
> >
> >A friend of mine attended. He recently purchased OptionVue. In
> looking at
> >the "platinum" service of their web site, he said that he would have
> >preferred using it to OoptionVue.
> >
> >You may also be wondering if I think George is honest, i.e., does he use
> >these techniques in his trading, or he is just hawking a system for the
> >sake of the money he can raise from these workshops. I think he really
> >trades them.
> >
> >Hope this helps.
> >
> >I'll let you know what success I have when I begin trading options.
> >
> >
> >
>
> At Thu, 19 Jul 2001 14:25:11 -0500, Brian Eckert
> <bjeckert@xxxxxxxxxx> wrote:
>
> >I attended the Optionetis workshop this week. A few of you expressed
> >interest in what I thought of it.
> >
> >They present a good, clear explanation of how to make low risk,
> high-reward
> >options trades. The trades are categorized, the risks are
> explained, they
> >teach you the exact way to place the order, etc.
> >
> >I have not started to trade using these techniques, but I am
> >encouraged. Their "calendar spread" technique averaged a 300% return on
> >equity last year.
> >
> >I was bothered by one thing. Throughout the seminar, they pitched their
> >other seminars, web site, newsletters, etc. I would have been a
> bit more
> >comfortable if the seminar came with a 4 week free subscription to their
> >news letter.
> >
> >A friend of mine attended. He recently purchased OptionVue. In
> looking at
> >the "platinum" service of their web site, he said that he would have
> >preferred using it to OoptionVue.
> >
> >You may also be wondering if I think George is honest, i.e., does he use
> >these techniques in his trading, or he is just hawking a system for the
> >sake of the money he can raise from these workshops. I think he really
> >trades them.
> >
> >Hope this helps.
> >
> >I'll let you know what success I have when I begin trading options.
> >
> >
> >
>
|