It’s always best to contact me with issues like this by e-mail as I get the message much faster. Nonetheless, I will look into this and get it resolved for you.

Chris

John Summa, Ph.D., did a couple live presentations for us in which he demonstrated several adjustment techniques. You can find the video re-play of those presentations in our options trading video archive.

I did allude to Battista hedging his position in this article, which he does in it’s conclusion. He writes…

“Now, if you look at all the traders and investors out there in aggregate, trading is a zero sum game, minus commissions and fees and all that…”

I guess even the occasional industry spokesperson has to maintain some credibility….

Something + Zero = Something

For example, you might tell me not to play the roulette wheel at the casino because each bet has a negative expectation, and the more I bet, the more I can expect to lose. The nature of that expectation doesn’t change just because I claim I have a 9-5 job that pays me more than I lose at the roulette wheel. I’m just playing a second financial game, where the sum of the two is positive.

saying that hedging changes the whole zero-sum game is misleading, dishonest and disingenuous. you might just as well say that the person who sells an option and uses the proceeds to buy a bushel of grapefruit can win on the net combination.

zero-sum is irrefutable and, to me, fundamental to understanding options. hedging does nothing but alter your position synthetically or carry the zero-sum logic one, two, or more steps out.

if e=mc^2 in the physical universe it would be more than a bit odd that somehow that law is broken in the fictive world of derivatives.

Take a look at Chris’ video. He reviews the basic conepts behind it.

Christopher Smith
TheOptionClub.com

Looking forward to receiving your email with the information.

Take care,

Reginald

Now that I know that the voice on those videos was not yours, I am very comfortable. You are still the same realistic person I have known. I will be signing up right away! Apologies for the outburst on the wrong guy!

Jay

I have not claimed that any strategy is fail proof or that trading is risk free. The entire point is that any options strategy can and will lose money and that if you hope to be profitable over the long-term that you need to address that fact.

A lot of folks out there are teaching people to commit large percentages of their capital to one strategy. This is often an “all or nothing” approach. Either the trade works out and we have a good month or we experience a severe capital draw down because we can’t see the risks and don’t know how to mitigate them. Yet, it’s the way most retail traders approach trading.

The alternative is 1.) implement really good risk management, 2.) diversify your risk over several strategies, time frames, and underlying products, and 3.) develop a method of managing this portfolio of trades. The result is that you end up with some trades each month that make money, a few that lose money, and some that break even. If your management skills are up to snuff you’ll know when to cut the losers out from your portfolio, or adjust the position if appropriate, to keep the losing trade(s) from eating into the profits or your account’s capital.

You are also correct that there “are always pluses and minuses in every trade.” What that really suggests is that there is a good time to use some trading strategies and then there are times when there is a better choice available.

So, you ask what’s the downside? Well, if you implement the concepts that I’m referencing, despite a high probability of success each month there will be months when you break even or suffer a limited loss. How limited? That depends upon your risk management decisions, but the guidelines that I use are conservative and intended to keep me out of serious trouble. No doubt some traders will choose to get more aggressive in hope of earning greater profits and will take on more risk as a result. We must all find our balance in this.

The one reassuring thing is that the greeks don’t lie. They tell you exactly where your risk is and how to mitigate or eliminate that risk. It’s just then a question of how much risk you’re willing to have in your portfolio and how you want to go about managing it. You want to get long the market? Fine. How long? How about 100 SPYder shares? Too much? Add some negative deltas. Too little? Add some positive deltas. The trick then is to figure out how to add the positive or negative deltas. Long premium? Short premium? Perhaps the underlying? These are all management decisions.

That’s what the course is all about… Management.

I assure you that I have not changed from my old self. I can’t tell you how many SPYder shares you should be long or short. What I can do is show you some ways to get long or short delta, while keeping the probabilities of success squarely in your favor.

Christopher Smith
TheOptionClub.com