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Perhaps you will prevail with your "simple hedging", but even Victor N.,
with his degrees in statistics, math and economics (including a doctorate
from the U. of Chicago) could not overcome that spoiler of beautiful
investment theories- - -illiquidity.
Regards, Jack.
----- Original Message -----
From: "DC" <dc010225@xxxxxxxxxxxxx>
To: "jack zaner" <jz@xxxxxxxxx>; "Omega-List" <omega-list@xxxxxxxxxx>
Sent: Wednesday, July 05, 2006 3:47 PM
Subject: Re: Implied Volatility for Futures Contracts
> Jack,
>
> there is a difference in opinion: some people consider "Texas Hold' em
Poker" a gambling.
> For others (like the State of California), the poker is a game of skills.
>
> I am somewhere in the middle: in poker there is a lot of randomness but by
the study of
> the game, you can "push" probabilities of winning in your favor; in slot
machines -- these
> probabilities are built-in and cannot be changed by a player and are set
in favor of a
> casino.
>
> I would compare poker playing to trading a "trend following" futures
system: a lot of
> random market data but by studying the data, by having a correct "money
management" system
> (a scheme for computing a number of contracts to trade), etc. you can
"push" probabilities
> in your favor. In poker now, with help of software you can save your hand
histories and
> backtest your strategies, the same situation we have in futures trading
for many years.
>
> I would like to declare the "selling of deep-out-of-the-money options" a
strictly a game
> of skills and understanding of statistical properties of market returns
etc. If you follow
> my recipe than there is NO 1% of "sheer terror". All cases of "extreme"
market conditions
> (that bankrupt gamblers like Victor N.) are handled with "business as
usual" attitude.
>
> So, you don't need any luck (but you need badly a math knowledge of
markets), and there is
> no fear involved in market extremes ("fat tail" events), just a simple
hedging invoked
> with a proper timing.
>
> DC
>
> ----- Original Message -----
> From: jack zaner
> To: DC ; Omega-List
> Sent: Wednesday, July 05, 2006 1:16 PM
> Subject: Re: Implied Volatility for Futures Contracts
>
> When I owned an FCM we used to have a saying about option premium sellers.
> They ate like birds and crapped like elephants. They also scared the
devil
> out of us. Their trading was 99% boredom and 1% sheer terror- -
especially
> those who had it all figured out. Good luck to you.
> Regards, Jack.
> ----- Original Message -----
> From: "DC" <dc010225@xxxxxxxxxxxxx>
> To: "Omega-List" <omega-list@xxxxxxxxxx>
> Sent: Wednesday, July 05, 2006 6:47 AM
> Subject: Re: Implied Volatility for Futures Contracts
>
>
> > Howard,
> >
> > I am selling only options on futures at MAN Financial. My next goal is
to
> develop options
> > selling for E-Mini Stock Index Futures (e.g. Russell 2000) at
> TradeStation Securities.
> > For this reason, TS 8.1 has to correctly compute the implied volatility
as
> explained in my
> > prior posting. The implied volatility topic is the focus of my postings,
> all my other
> > comments are secondary.
> >
> > Under normal market conditions (Gaussian/Normal distribution of
returns),
> it is relatively
> > easy to develop a selling strategy with very reasonable gains. However,
> this is not
> > enough, and you should not start selling options unless you study in
> details so called
> > "extreme" markets conditions.
> >
> > These conditions happen when market returns are beyond of 3 standard
> deviations, at the
> > "fat tail" region of distribution curve (markets behave closely to the
> inverse power
> > laws). I recommend that you create an "inventory" of these events, study
> them, and then
> > develop a simple and effective hedging strategy for all cases when
market
> prices get to
> > close to your striking price. Hedging will costs you money, and will
> decrease the gain for
> > the particular month. In very rare cases, you will experience a very
small
> drawdown
> > (1-2%), that can be recovered the following month. So far, no losing
month
> for me in spite
> > of several "fat tail" events.
> >
> > If given futures market doesn't support well enough your hedging
strategy
> (i.e. it is
> > illiquid under extremes) then don't dare to trade it. Otherwise you will
> end up as famous
> > Victor N.
> >
> > DC
> >
> > ----- Original Message -----
> > From: HBernst963@xxxxxxx
> > To: omega-list@xxxxxxxxxx
> > Sent: Tuesday, July 04, 2006 8:27 PM
> > Subject: Re: Implied Volatility for Futures Contracts
> >
> >
> > In a message dated 7/4/2006 11:00:54 AM Eastern Standard Time,
> dc010225@xxxxxxxxxxxxx
> > writes:
> > I can accurately compute synthetic options prices, and greatly simplify
> the
> > backtesting of my option strategies: selling the deep-out-of-the-money
> options for about
> > 30% annualized gains and with zero drawdowns.
> >
> > DC
> >
> > Are you selling options on individual stocks as well as commodity
futures?
> You say zero
> > drawdowns but there can be so called 'black swan' events such as a stock
> being bought out
> > where it jumps 30-40% in a day; a freeze in Brazil causing coffee prices
> to soar, Iran
> > could blockade the Persian Gulf and crude oil soars, as examples. Are
you
> saying that you
> > have never had a losing trade?
> >
> > If you are looking for a program where you can find implied volatility
on
> both stocks and
> > futures, OptionVue software is what I use and recommend.
> www.optionvue.com
> >
> > Thanks for replying,
> >
> > Howard Bernstein
> >
> >
> >
> > --
> >
> >
>
>
>
> --
>
>
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