Riddle me this, why do all the hard questions come at night after I have had a few whiskies?
I immediately walked downstairs and poured a brandy for this one.
Last things first..
<It took me 4 years of undergrad and 3 years of law school and 9 years of actual work to get where I am today....I just hope it doesn't take that long to figure all this out! :>
No, not necessarily. But it usually does take a few years, like it or not. I have always thought, and I read a remark by Mark Cook recently confirming my belief, that the bulk of traders who eventually achieve success are the ones who get crushed early. They develop a sense that the people who start out with a few home runs don't have. A sense of vulnerability and hence a tendency to be more careful.
My niece married a guy who started working for my nephew in a bond pit in Chicago. I don't know how he is doing, but I hope he got roughed up early. It's the only way to learn.
<One thing I have seen is that the traders who win consistently at this game are persistent and don't quit.>
It's not that they don't quit, it may be that they don't start. As Nemer and I were saying, sometimes it's best not to take the trade. Oftentimes, as a matter of fact.
And now why you are asking about holding OEX options overnight, the tough one.
Well, first OEX positions can be more safely held overnight in trending markets (as long as you are on the side of the trend). Second, it has to be a position taken with some insight as to the value of the option, whether it's overpriced/underpriced, what the implied volatility is, will that volatility do a Kaiser Sosay and go away in a puff of smoke, and stuff like dat dere.
So you should be aware of stuff like what Wayde asked but it still does not answer the question. My options friends love to buy volatility. Their posture is that the vol is there for a reason. They don't buy options on gold, for example, because the implied vol suggests nothing's going on, and nothing will go on.
But unless you are aware of potential changes in vol you could get crushed on an overnight position. I did not check, but my guess is that option premium got clobbered over the weekend no matter what side you were on. Option premium just does that on 3-day weekends.
Or take earnings announcements. No matter what Yahoo does tomorrow by Friday the premium SHOULD get fried. So Kevin was wise, in my opinion, to write against the long side.
Wih respect to your concern about holding the Mini overnight vs the OEX position, I would be more reluctant to hold the option. If I am going to go broke in the event of an unusual overnight move in Globex at least I could try to cover during Globex. Once the CBOE gets going in the morning my options could be clobbered. Of course, you could hedge the option with a alternate posture on the Mini but that's not the question.
The fear most have, and no matter how many times I say it (not to you) it still floats over like helium because people don't listen to the point. The problem with options is that they have a pre-defined maximum loss and people with poor Risk Management skills stop and say, "Well,I'm down 3,000 and selling out for a thousand is not worth it. The most I will lose is another thousand and I might get lucky and it will come back".
That's why the futures kick over options. You cannot get laissez-faire as most do with options. One has to do something.....with options the problem will just go away because the "most I can lose is xxx".
Poor Money Management and zip incentive to work on it. To successfully trade options one has to be on top of it all the time, have a strategy that is well thought out and stick to the strategy. As much as I hate to say it, it's work. People are often not successful with options because it's work.
So, I don't hold OEX options overnight much or for very long because there are too many variables that affect the price of the option. Larry McMillan does, but he knows the game backward and forwards. That's his schtick. He has 25 years of this stuff. You or I can't pick this up from a Primer on options. With you and I, we "know" the market is moving up so we buy calls. But we don't know the "right" ones or the potential for bull traps here and there which will rape premium.
Anyway, I'm running out of brandy. I don't know if I made any sense anyway, but I tried. |
