I AM a market professional.
Glad to hear that.
You have 80 puts strike 50 60 days to E short with price at 49 1/4. You have 130 calls strike 30 35 days to E short with price at 29. You're holding 12,500 shares in the big market against the call and short 6700 shares against the put. Your haircut is full and the annunciator board is calling your tag. What do you do?
Inquire before you blubber away. I will say that the options market is much more effecient than it used to be.
O'Connor teach you this? It isn't more effecient(sic), it's more liquid so the nominal and theoretical converge more quickly.
. which is actually GOOD for the public [you] and bad for the MM's and professionals [me]
The public can play your short premium game just a swell as an MM. They aren't near so they can't execute as finely, but they can book to enter. The fatter premiums never gave me an advantage and you can't approach it that way. The clippers on the floor who do don't last.
, but a look at many graphs of implied volatilities over the past 6 months makes it pretty clear that there is still lots of nice gravy out there for those that know how to price an option.
Volatility is fiducial and a two-edged sword. It takes bigger capital to manage a rise in overall volatility. Further, a rise in volatility makes the realization of efficiency more problematic. Guys start stepping on your toes when you're trying to get to the bidder. This makes adjustments more difficult.The second you aren't fully delta neutral you're losin' and the guys hangin' it out, are out the door in two years busted.
.. institutional option sellers [many times representing those with ton's of stock they want to write agains] are routinely taken down 20 OR MORE point on a VOL basis when they have size. You can pretend it's efficient if you want, whatever.
This is incoherent. Institutions write OOMs because it's essentially risk free, it's a 1/8 percent kicker on performance, and it helps the MM firms so that the soft perks flow.
and don't be giving you're money to Mr. Wynn, he understands real probability.
In contrast to complex probability?
and he'll welcome ALL you buyers and sellers whatever your preferences as long as they deviate from the real.
Probabilities are not relevant since they are individual random variable instances. It's the product space of expectation that is relevant. Mr. Wynn is trying to control the expectation of many trials by adjusting the instantaneous to expectation. In his attempt to do so he moves the deviation back to the expectation and so neutralizes the profitability potential. He can't get very big in order to be able to do this. If he tries, he creates a state where his effort to extract the deviation moves the expectation away from its previous position so that his action is actually inefficient. This is precisely what happened to Merton's LTCM Aug '98. I've seen it happen on the floor. At the time I didn't think it was possible. The point is that mechanical adjustments to realize fiducial incremental returns must operate within strict bounds. The problem is that when humans do this repeatedly it goes to their brain and they develop an attitude of invincibility. That's when they start multiplying their scale and they find that they become the swing in the market. Size goeth before a fall.
Good luck, you'll need it.
Ron will do well because he approaches this business the only way that ends up with you ahead. You don't find many guys on the floor who last more than 5 years. They all quit busted. The few who do survive operate like machines. They crank their cranks. It's just like having a day job with an average salary. You might as well get a good paying job rather than undergo all that stress for less. Of course, what you hear about is the loud mouthed honchos who are swinging a $20 million line, and always appear to be right. They're net naked most of the time and they manage to walk through the mine field until something hits. Then they disappear usually burning their sponsor for a fortune, that is they leave the sponsor's capital with the other side. |
