<p>OK - dumb move of the day. I bought the 3/8 dia 142.5 - 141.5 put spread for .3</p>
<p>DocT, we are not immune to the psychology of the market. Sometimes I look for low risk, low cost ways to satisfy my irresistable urge to buy something. I just want to make a big pile of stock certificates and roll around in them. </p>
<p>This market certainly rewards and reinfoces bad habits. I re-entered IBM long at 204.90 a few weeks ago. Went down to 197.50? No problem! I like the stock! So today it trades above 207… I sold a 205 put and sold the stock at 206.50. Long AAPL at 425.75 and it goes down to 419 by the end of the day? (gulp) oh… its a longterm value portfolio position. Well look at that s### today. This is where people start to think they are great traders (I have no such illusions).</p>
<p>I bought the put spread expecting a small pullback by Friday based on the typical pullback after hitting a psychological market level such as round numbers 14000 etc, and all time highs.</p>
<p>So let’s see…</p>
<p>I sell goog 730 puts for a dollar. Should make a dollar.
The other guy buys stock at 811 and buys the puts for a dollar. Cost 812. Stock is trading 836. </p>
<p>The other guy is up 24 dollars. </p>
<p>Kind of like his side. Lol
I will take the dollar.</p>
<p>What if it goes to $731?</p>
<p>How about if his stock ends up at 811 on Friday? He lost a dollar and you made a dollar. It’s all about probabilities and risk. Your trade had a higher probability of winning and had less risk. His had a lower probability of winning with more risk. Of course his upside is limitless and yours is capped at 1.00.</p>
<p>Yeah… I had a higher probability of winning which is why I do trades like this. </p>
<p>24 times higher?</p>
<p>I going to look at the buy write efts later and see how they are doing compared to efts like spy…</p>
<p>He made 3%.</p>
<p>I personally think that your trade had 0-risk. I think that his trade was low-risk too but nowhere as near as yours.</p>
<p>He may have made more… </p>
<p>He may have had to put up 811-730 plus the price of the put…a dollar…</p>
<p>Using percentages is a dangerous game with options because of the leverage</p>
<p>The returns are very uneven and can be wiped out quickly</p>
<p>Actually dstark’s risk is ~.03%</p>
<p>What I could have done was buy stock and sell puts…</p>
<p>That number is impossible doct…</p>
<p>Based on the implied volatility of goog at 730 today, that is the calculated probability that you will have goog put to you based on today’s goog price of 839 with 3 days left</p>
<p>That is a flaw.<br>
You can’t have a negative number. There is a chance even if the chance is 1 out of 10000</p>
<p>The chance is bigger than that…</p>
<p>Its not a negative number, ~ is not a minus sign, it means approximately</p>
<p>I appreciate you guys defending the trade. It was very, very low risk. If I thought the stock was going up it wasn’t really the trade to do.</p>
<p>Ok… Good… What was the prob with 9 days to go?</p>
<p>Remember, those calculated probabilities have to use some type of assumed distribution. How fat are the tails used in those distributions? Remember all that black swan stuff is based on the idea that there are actually “fat tails” in those distributions, ie the actual probability of a freaky outlier event is greater than in our assumed distributions.</p>
<p>Actually it is the other way… BS underestimates the big moves…right?</p>
<p>What is the guy’s name that wrote the Black Swan?</p>