Shared Top Border
sdcia_head3.jpg (14795 bytes)
SDCIA Message Board
Register Latest Topics
 
 
 


Reply
  Author   Comment  
rickencin

Avatar / Picture

Senior Member
Registered:
Posts: 1,003
Reply with quote  #1 
The DOW is current down over 400 points for the day (24,147) or over 1.5%.  Wait a minute and that will change.  I think much of the volatility (change in value) in the market is due to momentum traders.  They want to "get ahead" of the trend.  So they sell, short or put the market when it seems to be going down and buy or call the market when it is going up. (Put and Calls are always confusing because you can buy or sell them.)  This is much the same psychology as gamblers who love the action.  Options (puts and calls) allow you to go after much bigger gains than mere cash purchasing of a stock.  Most options finish out of the money if the market doesn't move enough.  You lose your option money but no more.  With enough volatility you could even bet both ways and it doesn't matter which way it goes as long as it moves a lot.  Option traders live for the volatility. The best thing is that buying a stock tends to make the price rise, which is what you want and selling a stock tends to make the price fall, which is what you want.  

Stocks tend to look like a random walk with a possible underlying change in average value.  It doesn't much matter whether you trade over a second, minute, hour, day or year.  Options and other techniques have specific time periods.  The graphs look about the same.  It seems to me that you could just figure out the standard deviation of the volatility for number of data points in a certain time (one minute data points for an hour) and make a bet on half of that or some other number less than the standard deviation.  You have a good chance of achieving less than a standard deviation before the time period ends.  You still would have to decide on up or down.  What, you thought I just discovered free money?  No refunds if you lose your life savings.  Gamblers just love the excitement.  

Momentum trading is a bit like tach (velocity) feedback in a control system.  A little is a good thing.  Too much is usually a disaster.  A change in value tells you what to do.  Unfortunately noise produces large changes in value. The spike goes way up, the spike comes way down. Too much tack feedback and your output is slamming around up and down following noise.  Kind of reminds you of the stock market and momentum traders on days like today.



__________________
Rick
Paul

Senior Member
Registered:
Posts: 2,059
Reply with quote  #2 
Quote:
Originally Posted by rickencin
 The graphs look about the same.  It seems to me that you could just figure out the standard deviation of the volatility for number of data points in a certain time (one minute data points for an hour) and make a bet on half of that or some other number less than the standard deviation.  You have a good chance of achieving less than a standard deviation before the time period ends.  You still would have to decide on up or down.  What, you thought I just discovered free money?  No refunds if you lose your life savings.  Gamblers just love the excitement.  



Many online brokers have software that does that instantly. Ameritrade's Thinkorswim division  stands out as the best of the rest. There seem to be endless structures on how to take a position on this. They range from buying or selling simple puts or calls to various spreads and 3-4 multi contracts.

This type of strategy would have a high winning percentage, a low, per-trade,
average, winning-dollar amount, a much higher per-trade, average, losing-dollar amount and every so often you'd suffer close to the max risked. Keep in mind selling naked calls or puts subjects you to unlimited risk. The required margin for that is also very high. I should note that many strategies call for taking profits before expiration because the probability of a winning trade increases. 

One drawback to researching option strategies is the lack of reasonably priced historical option price data and non-geeky, backtesting software. 

I should mention that some strategies (deep, out-of-the-money positions) that involve selling naked puts and calls are frequently referred to as, "Picking up nickels in front of a steam roller."



rickencin

Avatar / Picture

Senior Member
Registered:
Posts: 1,003
Reply with quote  #3 
Quote:
Originally Posted by Paul


I should mention that some strategies (deep, out-of-the-money positions) that involve selling naked puts and calls are frequently referred to as, "Picking up nickels in front of a steam roller."


Ha! Ha!  Now there's a great visual image!

__________________
Rick
Previous Topic | Next Topic
Print
Reply

Quick Navigation:

Easily create a Forum Website with Website Toolbox.

Policy