> If you know the probability of success
How would you ever know the probability of success? What is success anyway? Breaking even? Doubling your money? Beating t-bills? What?
I'm sorry for what may seem like an attack -- I assure you it has nothing to do with you personally -- but I have a strong dislike for authors who give people formulas like that on which to base very important life decisions. I can just imagine someone sitting there going "well, I'm 90% sure Bre-X will be successful, so I'll put 80% of my life savings on it!"
The objective probability of success does not exist. Success -- if we can first define it -- either happens or not at some point in the future. But there is no "probability" of it right now.
(exception: you can derive probabilities of certain time-price combinations using historical market returns and the beta of a security, but this is not what books like this mean when they say "calculate the probability")
> conclusions that fly in the face of
> conventional wisdom
Tip: beware of anything that flies in the face of anything.
> my personal experience: CBOE's software Option Tool
> is better than McMillan's book
Very different tools, that I think are best used in tandem. E.g. no one learns to fly just by reading a book, but also no one learns to fly just from playing on a simulator.
When I was younger and braver (about 3-4 yrs ago) I read McMillan and some other similar books, then papertraded for a while, then started making myself a pretty decent income daytrading options. What I found is that it can be very profitable, but you have to be prepared to eat some big losses, and in terms of dollars per hour, it is not such a lucrative activity -- if you trade options you have to be pulling up quotes and ready to trade pretty much all day.
Got out of that hobby when it was eating into my life too heavily. Reading Malakiel's book didn't help much either.
My main suggestion to someone going into trading options is to sit down and stare at Black-Scholes, and fully understand what it means about time premiums -- because of the time premium, as an options trader you are basically bleeding money any time you are holding a long position in a put or call. |
