Options Traders

Due to my fortunate luck at the poker table, I am now flush with some spare cash that i would like to invest in some speculative, high risk/reward investments. Does anyone do this for a living? If not, any thoughts from those who invest on their own. Many thanks,

You may want to look for a small biotech company and buy calls that are dated shortly after the anticpated announcement of a trial’s results. If the results are positive, you could cash in big. If they’re negative, then at least you tried.

That’s why the relationship guys like me to talk to clients after a rough quarter. I can tell them that, although we lost their money, at least we tried, haha. I’d love to say that.

I like your style but i think if i am going to take such a gamble, i might as well stict to poker.

I find this an interesting space as well and one I am not as well versed in as I would like to be. I have stuck to basic strategies like buying calls, selling covered calls, buying puts…but no multi-leg types of trades as of yet. I am not versed enough to be like “wow gamma is so cheap right now” or anything other than “well theres the delta…”.

I’ve actually made decent money given the amount I’ve invested via options, and certainly think actually putting some money down is the best way to learn it (buy some OTM calls to start perhaps).

In my experience, options are overpriced (ask me about “implied volatility is always higher than realized volatility”), so I’d be inclined to sell (out-of-the-money) options rather than to buy options.

You asked for high-risk/high-reward option and got one, then responded that if one wants to be risky, you’ll continue playing poker. If you want less risk, buy fewer options. If you want a lot less risk, stick it in a savings account. Sounds to me like what you are really looking for is low-risk/high-reward. Well, so are all of us, but that doesn’t mean it is out there.

As for options being overpriced, if you have a view on things, then the price doesn’t seem to matter too much, except as a transaction cost. Implied volatility being higher than realized volatility just means that you are paying someone more than it would cost you to replicate the option on your own, if you had zero transactions costs and were risk neutral. Are you really risk neutral? Are your transactions costs zero (or at least lower than the bank selling you the option? Do you not have a view on the underlying at expiry? If the answer to all of see things is yes, then options are usually overpriced. But if the answer to all of these is no, options can be useful for expressing views. However, one shouldn’t have a policy of being continually long options close to the money, because that will almost usually cost more than you make.

I made something like 22% in one day buying calls on a 3x leveraged oil ETF (I believe it was ERX). There’s not a huge amount of interest in these, but you can usually find a few contracts where you want em.

A week later I lost it all on RIM (BB) options haha.

What i am seeking is an individual who has a lot of experience in such trades and would point me in the right direction (i.e buy OTM XYZ with strike of X) or even consider investing my funds for me.

Should say “implied volatility is systematically higher than realized volatility”. It is not always higher. Some vol spikes in the relatively recent history bring this to mind.

I’m quoting a very pointed statement directed at me a few years ago. The speaker said, “always”.

Of course, always keeping in mind buying options may be a slow bleed but one bad OTM option sale can ruin you.

Would have hated to be the guy selling puts like mad eating up that excess implied volatility in the fall of 2008.

I invested in BAC leap call options when the underlying was at $5. At the time it was reported that many members of congress held their shares and the federal reserve was lending to them under market interest rates. It was a pretty sure IMO that it wasn’t going backrupt in the long term so I bought.

I took that money and invested it (and more) in a technology company trading again around $5 with leap call options. The company then turned out to be overstating revenue. I had used this product personally and had friends that had it in their computers. I thought it was of high quality and could see that as more are made and market prices for each individual compenent go down that it will become more of a household item. The adjustment from the misstatement dropped the share price by $3 and now it’s worth about nothing. There is a class action suit to get people like me some money back.

IMO. You should try to do it, but from my personal experiences I would go to stocks. I think that the high risk high reward is nice, but if you want to get insta-rich marry money.

Picking up pennies infront of a freight train

Somewhat opposite of Taleb’s strategy, right? Or is that just for far out of the money options?

Taleb likely wouldn’t be picking up pennies in front of a freight train, no.

Trade forex. Options are hard: you gotta have correct:

-timing

-direction of underlying(up/down)

Forex u just need to choose proper currency direction(appreciate/depreciate) and the leverage is sick

Oh yes, all you need is proper currency direction. Easy peasy. Hey, if all I needed is proper equity markets direction I could make a fortune too. Easy peasy.

The tricky part with OP’s question is that we should find an investment with high reward/risk. Simply choosing to maximize potential reward by maximizing risk would be quite foolish, in my opinion. Options, if priced correctly, provide zero expected return unless you are able to make better choices than other market participants. So, unless you are convinced that you have some kind of information advantage, it would probably be better to look elsewhere.

Taleb’s strategy is based on the idea that tail events are underpriced; he would pay 1% premium for what he believes is a 2% event. The problem is that he will lose 1%, 98% of the time. So, this strategy is probably not worth the effort unless you can find a large number of uncorrelated underpriced tail events. The last time I checked, Taleb’s fund was not exactly thriving.

Where options are concerned, I like the idea that realized volatility is usually less than implied volatility. This means that most of the time, you can make money by selling volatility. The problem is that you must know when to exit this trade, as volatility spikes can cause significant losses. Although this is boring, I also like the idea that risk assets appreciate over time. Holding a large portion of net worth in stocks is one of the only things I can consistently recommend for personal investors.

Have to love Taleb’s career move: just be the guy that chills in the corner for years on end, wait for something crappy to happen and then be the guy on every news outlet and rehash your first book again.

His fund is called the Black Swan Protection Protocol Fund. Curious about returns, I took to Google and found that there are very few posts about it after 2011.

That said, this could be seen as a positive indicator for such a strategy. OP, invest your money is safe, income producing securities and use the yield plus some small percentage of capital to buy way out of the money puts. Or sell calls and buy puts…some strategy seeking to profit from a large loss.