options (finance)
 

My uncle who is a venture cap guy suggested to me that I may want to consider trading options as a career. He said that the earning potential is incredible and that because I'd never be the work-for-the-man type and there are many parallels to poker, it may be something in particular where I could excel. One idea might be to do lots of research, learning, and work on my own, create and manage either a real or imaginary portfolio, do well (hopefully), show results along with poker/chess results to some young star option traders, get taken aboard, profit.



So a few questions for those that might be more in the know:

-are the parallels with poker really that strong?
-how feasible is his suggestion?
-what is the life of an options trader really like?
-how should I go about learning? I know nothing.
-suggestions, comments, anything. please dont restrict yourself to just talking about those bullet points. I'd like to know anything.

Re: options (finance)
 

options are ok, but swaptions are where it's at!!

you should probably research Sales and Trading as a general career path. this is pretty general, encompassing trading equities, bonds, derivatives and selling these products to institutions.

lots of monies to be made & the hours aren't bad.

Re: options (finance)
 

If you think about it, *almost* everything in life are parallel with poker [discipline, go with your gut, hard work etc].

Anyway, a lot of young poker players are going to realize that even though there are similar characteristics between poker and investing in the stock market, the minor differences between the two fields are enough to make the transition difficult. The most obvious one is the level of importance of decision-making.

In poker, making good decisions and avoiding mistakes will make you moneys in the long run. In trading, this concept becomes exponentially true. The reason is the amount of money you must risk in relation to your bankroll [or portfolio] to make a healthy profit. For example, a bad decision in a hand won't hurt your profits that much but buying the wrong stock can wipe out a huge portion of your profits.

Lastly, patience is a virtue in poker and investing. However, in poker, if you lose patience and start playing bad/making wrong decisions, at least you will get paid off your image in future hands. Mr. Market doesn't give a damn about your image.

Disclaimer: this is coming from a self-employed guy so perhaps it might not affect those working for firms/hedge funds, where you actually get a stake for your play [100% risk-free obv].

Re: options (finance)
 

OK even though this was mentioned before, I want to ask again:

Is poker alone enough to get in? Is there some kind of test I could do to prove that I'm good enough (or find out that I'm not) in lieu of a college degree that's actually difficult? (mine wasn't) Can I make up for bad grades?

Re: options (finance)
 

[ QUOTE ]
OK even though this was mentioned before, I want to ask again:

Is poker alone enough to get in? Is there some kind of test I could do to prove that I'm good enough (or find out that I'm not) in lieu of a college degree that's actually difficult ? (mine wasn't) Can I make up for bad grades?

[/ QUOTE ]
You own portfolio.

Re: options (finance)
 

[ QUOTE ]
where you actually get a stake for your play [100% risk-free obv].

[/ QUOTE ]

this is far from the truth

Re: options (finance)
 

Lots of parallels to poker, except the hours.

You might want to check out this poker related site about forex, a lot seems relevant about options.

Re: options (finance)
 

BH,

That is an awesome avatar

Re: options (finance)
 

JB,

The key factor you will need to determine is whether you fall in love with it. If one of the reasons you're looking at options/finance is "because the hours aren't bad", stick with poker. Options, and other trading/investing in general, requires inordinate amounts of independent studying to actually be able to think independetly from the rest of the "participants".

So you are basically looking for the same "feeling" that I assume you experienced in the beginning with poker. As in wow, I wanna do this 24/7, and even if I had 1 billion $$ already. Otherwise, just look for something else that gives you that same feeling -- there are many opportunities in finance outside of options trading that are just as independetly-minded and lucrative, but perhaps more abstract than mathematical(unlike options) -- such as global macro. Then there's also VCs and entrepreneurship. While poker and chess relate significantly to all of the above, it is probably impossible to pick a random poker pro and determine which one he will fall in love with / is most inclined towards. For example, a lot of poker players WOULD NOT make good options traders b.c. they hate math and excel in poker while eschewing math almost completely.

Your "plan" sounds feasible except that in the initial stage, I'd focus more on knowledge accumulation than on paper / small portfolio results -- because those will be largely irrelevant when it comes to actual big money results. Its like showing someone your .25/.50 NL stats to apply for a chance at 200/400. The ease with which you command the fundamentals / history is what will really matter, and it will easily show in a 1-hour conversation with any expert you wanna work with b.c. all you need to pick up are the "tricks" that still work in the current time (thus not yet published), and combine them with knowledge to generate new tricks and insights that will hopefully be 1 step ahead of the everyone else.

Re: options (finance)
 

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[ QUOTE ]
where you actually get a stake for your play [100% risk-free obv].

[/ QUOTE ]

this is far from the truth

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Besides hedge fund managers [or employees who are required to re-invest their salary/bonus into the fund], can you give me an example where the person running a fund is liable for losses? And even if he has a negative return, he still gets paid by the fund for doing a shietty job.

Re: options (finance)
 

Ja,

I'm currently in the process from transition to playing poker to a full time stock trader. I wanted to trade options/futures in the beginning but then went with stocks since imo there's a lot more info on it and it's easier to learn in the beginning than options, although options-trading does have advantages in that the spreads are narrower (and thus it's easier to profit) and depending on who you go with are your broker, commissions won't be very high. Here's the bad part about options trading, however: they expire. Since a chunk of the options price is time-value, the less time remains until expiration, the less it's worth thus it's always a race - not only do you have to "guess" correctly, you have to guess correctly in the alotted timeframe. That makes options trading FAR more difficult than everyone thinks in the beginning. Far as your questions, I will try to answer some, hopefully others will elaborate:

[ QUOTE ]
-are the parallels with poker really that strong?

[/ QUOTE ]

HUGE, and they can't be overstated. Both poker and trading are probabilistic fields, both require you to focus on the process rather than the results, good money management and discipline, and understand the role of time in that if your decisions are good results will take care of themselves. You will have major headstart on most beginning traders coming from a poker background.

[ QUOTE ]
-how feasible is his suggestion?

[/ QUOTE ]

I'd start with stocks or even forex before jumping into options. What you have to really and truly understand is that the market is a zero-sum game, so every dollar you make is a dollar another trader/investor just lost. When you hear how much money options traders make, well, lets just say they would roll out the red carpet for you and welcome you to the trading arena with open arms.

[ QUOTE ]
-how should I go about learning? I know nothing.

[/ QUOTE ]

There's lots of literature available on the subject. I went to www.tradingacademy.com. They aren't cheap but the stuff they teach you won't learn anywhere else. There's also www.elitetrader.com, a forum like 2p2 but dedicated to trading and all the aspects thereof.

Someone said about wrong decisions in the market resulting in greater losses. Umm, lol, no they don't. I daily take positions worth over 250k, the worst loss I've had has been about 1k. It's called stop-loss, and it's totally sweet. So you will have time to learn without fear of going broke in a week. In fact, that would take some really major effort on your part. But it does require a lot of study and patience. PM me if you have any other questions, I will try to answer best I can.

Kirk

Re: options (finance)
 

[ QUOTE ]
What you have to really and truly understand is that the market is a zero-sum game, so every dollar you make is a dollar another trader/investor just lost.

[/ QUOTE ]
Not to nit-pick but the market isn't a zero-sum game. You probably meant options.

[ QUOTE ]
Someone said about wrong decisions in the market resulting in greater losses. Umm, lol, no they don't. I daily take positions worth over 250k, the worst loss I've had has been about 1k. It's called stop-loss, and it's totally sweet.

[/ QUOTE ]
I don't know much about options but I find the above claim hard to believe. Because if stop-loss is that sweet, why did funds such as Amaranth and LTCM lost billions of $$$?

Or you might be running hot [img]/images/graemlins/cool.gif[/img]

Re: options (finance)
 

[ QUOTE ]
And even if he has a negative return, he still gets paid by the fund for doing a shietty job.

[/ QUOTE ]

or eventually gets fired

I had this conversation with a friend of mine who is an analyst, who recommended 1 stock for his company and also bought a good deal of it for his personal portfolio. even though he had 'his' money invested in the stock, it was much more important to him that the stock went up, for his careers sake.

Re: options (finance)
 

kirk,

can you please detail your progession and results at trading. what is your poker background? thanks

Re: options (finance)
 

Read the book "Fooled by Randomness". It is an interesting read about general randomness and trading writen by a succcessful options trader.

Post deleted by Mat Sklansky
 

Re: options (finance)
 

[ QUOTE ]
Besides hedge fund managers [or employees who are required to re-invest their salary/bonus into the fund], can you give me an example where the person running a fund is liable for losses? And even if he has a negative return, he still gets paid by the fund for doing a shietty job.

[/ QUOTE ]

just because you can't lose money doesn't mean you have risk-free compensation. the bulk of compensation in these careers comes from bonuses, which are tied to performance. so your earnings could be much lower than your peers if you have subpar performance.

Re: options (finance)
 

"Options, and other trading/investing in general, requires inordinate amounts of independent studying to actually be able to think independetly from the rest of the "participants"."

This is what I dont understand. How does someone look at a bunch of reports on the internet and decide if a stock should be bought or sold?

Re: options (finance)
 

[ QUOTE ]
Lots of parallels to poker, except the hours.

You might want to check out this poker related site about forex, a lot seems relevant about options.

[/ QUOTE ]

lol

Re: options (finance)
 

[ QUOTE ]
How does someone look at a bunch of reports on the internet and decide if a stock should be bought or sold?

[/ QUOTE ]

well some would say that doing this is a suckers game. you aren't going to be able to beat the market doing this, etc etc.

the other tact is to do primary research. ie don't rely on other peoples reports, do your own and try to figure out what direction a stock should/will be going.

this is what analysts are paid hundreds of thousands of dollars, or millions, to do, b/c its hard to do well

Re: options (finance)
 

[ QUOTE ]

[ QUOTE ]
Besides hedge fund managers [or employees who are required to re-invest their salary/bonus into the fund], can you give me an example where the person running a fund is liable for losses? And even if he has a negative return, he still gets paid by the fund for doing a shietty job.

[/ QUOTE ]

just because you can't lose money doesn't mean you have risk-free compensation. the bulk of compensation in these careers comes from bonuses, which are tied to performance. so your earnings could be much lower than your peers if you have subpar performance.

[/ QUOTE ]
Very true.

But my point was you don't lose money out of your own pocket even if you have a negative return; you also get paid! And if you're a hotshot [and achieved good returns from previous years] who over-leveraged your fund to busto-town, there will be people waiting to help you start up a fund again. I know that's an exception rather the rule but it wouldn't be a stretch to say it's "common practice" in Wall Street, where greed makes people's memory less than optimal.

Re: options (finance)
 

Your uncle is 100% right with everything he said, Im basically doing the same thing you are when I was inspired by one of the best traders in the world who recently moved to my dads office and out of the trading business of the Chicago exchange because he wanted a little more stabilty.

The best thing you can do is set up an interactive account online, there aren't alot of interships for hedge funds that I know of, you basically do what you said, show your knowledgeable in an area that corresponds with trading, and show a little experience and you'll have a good chance of getting hired.

Re: options (finance)
 

[ QUOTE ]
"Options, and other trading/investing in general, requires inordinate amounts of independent studying to actually be able to think independetly from the rest of the "participants"."

This is what I dont understand. How does someone look at a bunch of reports on the internet and decide if a stock should be bought or sold?

[/ QUOTE ]

Mainly by reading books on the HISTORY of financial markets, all of the events that happened in the past 150 years, why they happened, human psychology, etc.

Then you read the reports, news, and discussions and patterns become very clear. Much like they do after spending 2 years looking at hand histories, except here its gonna be little longer.

Re: options (finance)
 

[ QUOTE ]
[ QUOTE ]
What you have to really and truly understand is that the market is a zero-sum game, so every dollar you make is a dollar another trader/investor just lost.

[/ QUOTE ] Not to nit-pick but the market isn't a zero-sum game. You probably meant options.

[/ QUOTE ]

No, I meant precisely what I said. Minus what you pay in commissions, every other cent you make and lose comes out or goes into another trader's pocket.


[ QUOTE ]
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Someone said about wrong decisions in the market resulting in greater losses. Umm, lol, no they don't. I daily take positions worth over 250k, the worst loss I've had has been about 1k. It's called stop-loss, and it's totally sweet.

[/ QUOTE ] I don't know much about options but I find the above claim hard to believe. Because if stop-loss is that sweet, why did funds such as Amaranth and LTCM lost billions of $$$?

[/ QUOTE ]

SlowHabit, I'm sorry but you simply don't know what you're talking about. Read the book "When Genius Failed: Rise and Fall of LTCM" its all explained in there. To summarize, though, LTCM did not have any sort of stop-losses set in combined with the fact that using massive amounts of derivates and debt they were leveraged, at their highest point, almost 30:1. They did not practice any sort of stop-loss b/c they were convinced that they cannot go wrong, and couldn't really do it if they tried that well anyway simply because of how they were structured. Seriously, read the book, it's a great read in and of itself.

KKF and blueman,
I've recieved numerous requests in other threads for this as well, the thing is I simply don't know how to go about it. I don't want to start up a blog or anything and I don't see a good place to stick my updates anywhere in 2p2 since the vast majority of people simply wouldn't care. If you have any ideas, PM me.
And yes, day trading is what I'm focusing on right now. It's not that exciting, actually.

Kirk

PS. Yes, I would recommend the school I went to with no reservations. I paid 5k for a week-long class. It would've been still worth it at twice the price.

Re: options (finance)
 

I'd be very interested in learning about becoming a trader from anyone that has this type of job.

I've done some light trading of OTCBB /penny stocks years ago...mostly just trading on momentum and L2 data.

Would anyone be so kind as to PM or instant message me (z28dreams on AIM) and guide me?

I'm torn between choosing career paths right now, and this is one of the options.

Re: options (finance)
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
What you have to really and truly understand is that the market is a zero-sum game, so every dollar you make is a dollar another trader/investor just lost.

[/ QUOTE ] Not to nit-pick but the market isn't a zero-sum game. You probably meant options.

[/ QUOTE ]

No, I meant precisely what I said. Minus what you pay in commissions, every other cent you make and lose comes out or goes into another trader's pocket.

[/ QUOTE ]

Everyone decides to buy the Vanguard Total Stock Market Index Fund. Tell me, who's losing money?

[ QUOTE ]

[ QUOTE ]
[ QUOTE ]
Someone said about wrong decisions in the market resulting in greater losses. Umm, lol, no they don't. I daily take positions worth over 250k, the worst loss I've had has been about 1k. It's called stop-loss, and it's totally sweet.

[/ QUOTE ] I don't know much about options but I find the above claim hard to believe. Because if stop-loss is that sweet, why did funds such as Amaranth and LTCM lost billions of $$$?

[/ QUOTE ]

SlowHabit, I'm sorry but you simply don't know what you're talking about. Read the book "When Genius Failed: Rise and Fall of LTCM" its all explained in there. To summarize, though, LTCM did not have any sort of stop-losses set in combined with the fact that using massive amounts of derivates and debt they were leveraged, at their highest point, almost 30:1. They did not practice any sort of stop-loss b/c they were convinced that they cannot go wrong, and couldn't really do it if they tried that well anyway simply because of how they were structured. Seriously, read the book, it's a great read in and of itself.

[/ QUOTE ]
I agree that I don't know much about options. However, I will do more research to see if taking positions over 250k with the downside of only 1k is an optimal strategy. If such is the case, I'm definitely in the wrong area of investing.

Re: options (finance)
 

i run a derivatives desk at a hedge fund...if people care, i can answer specific questions...

So a few questions for those that might be more in the know:

-are the parallels with poker really that strong?

parallels are strong, but by no means does it mean that someone who is successful in one will do well with the other...for one, investing takes a lot more work...and risk management (bankroll) skills must be very good...

-how feasible is his suggestion?
chances of working on the sell-side or buyside depend on your educational background, interest in markets, correct skillset, etc...not "easy"...but plenty of people do a lot of work on their own and trade options successfully
-what is the life of an options trader really like?
too general a question

-how should I go about learning? I know nothing.
quantitative degrees from school, genuine interest in the market, a lot of reading, tlak to others that spend a lot of time on the markets

-suggestions, comments, anything. please dont restrict yourself to just talking about those bullet points. I'd like to know anything.

[/ QUOTE ]

ask more specific questions and i'll answer if you want them

Re: options (finance)
 

Rock1,

Is taking over positions worth over 250k with a stop-loss of 1k an optimal strategy?

I am confused because stop-loss sounds counter-intuitive. If you're willing to make a bet that a stock is cheap [or overvalued via shorting], wouldn't you load up more when the stock gets cheaper [or get more overvalued than before]? By using a stop-loss [especially at a small percentage with relative to your holdings], you basically admit that you were speculating rather than "investing."

Re: options (finance)
 

I think Im going to take a trip down to teh big library tommorow and want to get some investing/trading books, I like the idea of forex being something similar to poker, and something I can do for a "real job". What other things can I take a look at if I have abotu 40k and want to try to get super rich off it? what areas of finance, etc. I know nothing about it, so if you could just list a bunch of good books for me to check out and pour over, Id appreciate it.

Re: options (finance)
 

i have never traded using stop-losses...from what i know, i would say that people who do a lot of fundamental work generally do not use stop-losses, for the reasons you state...if you understand the financials of a company, u would want to buy more as it goes down as opposed to sell out (unless you set the stop loss down 15% or something, and if it gets hit u figure you have gotten somehting wrong)...stop-losses are really utilized by technical traders that look for patterns and dont really care about actual fundamentals...

currencies tend to trend a little more than equities so i would guess people use stop-losses a lot more in technical forex trading...

Re: options (finance)
 

Kirk,

Are you working at a firm or are you just doing this on your own?

Re: options (finance)
 

[ QUOTE ]
Mainly by reading books on the HISTORY of financial markets, all of the events that happened in the past 150 years, why they happened, human psychology, etc.

[/ QUOTE ]

Do you have any suggestions for good books to read?

Re: options (finance)
 

SlowHabit, it's really amusing how personal you're taking this. The question you did not bother to ask - but should have - is what's my upside. It is, fact, not much greater than my downside.
Let me break it down real quick: If I buy 2000 shares of IBM (which is what I trade) at $116, that's a position worth $232,000. However, in order for me to lose $1,000 it would have to go down (or up, since I'm usually shorting anyway) 0.50c. I will never allow myself to stay in a losing trade that long!! If a trade turns sharply against me, I'm not going to stay in and hope things get better. I'm going to get out and look to re-enter (or even totally flip my position and go long if I was short before, for example) at a better time. Does that make more sense now?
Like rock said, my trading is virtually completely technical, I try to anticipate price movements based on current prevailing market conditions as well as that particular stock's patterns, since history tends to repeat itself. I'm still very much in the nascent stage of my trading "career," so to speak, and by no means all that great at it.

40k is FAR more than you need to get started. I started with much less figuring that if I lost that - of which there was a good chance - I can always reload, and it's not like trading 100 share blocks will teach you any less than trading 10,000 blocks in the beginning.

I do not work for anyone else and never intend to, unless it's completely on my terms. I trade my own money and am extremely content doing that. The mere thought of someone running my life gives me nightmares.

This post is already too long so I'll leave it at that.

Kirk

Re: options (finance)
 

Kirk,

Ive never read a single book about investing. Please give me five books to read in order.

Re: options (finance)
 

[ QUOTE ]
If I buy 2000 shares of IBM (which is what I trade)

[/ QUOTE ]
Is that the only stock you trade? [img]/images/graemlins/confused.gif[/img] I assume not. Anyway, can you elaborate where do you find your information to base your decisions off of?

Re: options (finance)
 

[ QUOTE ]
Kirk,

Ive never read a single book about investing. Please give me five books to read in order.

[/ QUOTE ]

1. "Reminiscences of a Stock Operator" (literally #1 loved trading book of all time) by Lefevre
2. "How I made 2 Million in the stock Market" by Darvas
3. "Way of the Turtles" by Faith
4. "When Genius Failed" by Lowenstein
5. "The Intellegent Investor" by Graham, of which there's an excellent revised edition now which I'd be sure to buy rather than the old one (if that's even possible).

I'm on Way of the Turtles right now myself but it's already helped me tremendously so it's on the list.

This list is obviously very general but if you're just looking to sort of stick your head in and see what the deal is anyway, I think that list will give you a great idea of what trading/investing is about. There's obviously lots of others that I haven't read yet but which should probably be on there. I'm also not an investor , I'm a trader, so I have my bias. But you asked.

Also please keep in mind that I have gotten seriously into trading around March-April of this year, then WSOP started and I had to take lots of time off, and back again full time now that it's over. So to say I'm no authority on trading/investing is an understatement of the year.

Kirk

Re: options (finance)
 

Kirk,

Sorry to pry, and if you don't want to answer or answer via PM, that's fine. I'm just trying to learn a little more as I am going to be working for a trading firm this fall.

So you are completely self employed and do this all from your home? Are you planning on/confident that you can make a living on trading?

Re: options (finance)
 

I found www.tradingacademy.com. to be very helpful. Stupid question...what is the best DAT program available to the public?

Re: options (finance)
 

If I buy 2000 shares of IBM (which is what I trade) at $116, that's a position worth $232,000. However, in order for me to lose $1,000 it would have to go down (or up, since I'm usually shorting anyway) 0.50c. I will never allow myself to stay in a losing trade that long!!


so then are you a day trader?

Re: options (finance)
 

Kirk,

I'm not taking it personal. Or else I wouldn't have agreed I didn't know much about options. And I appreciate your explanation. Trust me, no sarcasm [img]/images/graemlins/cool.gif[/img]

Perhaps I should have mentioned I'm a value-investor. Thus, it's common for me to hold a security up to 25% of my portfolio and don't practice stop-loss [my current tolerance is probably when the stock falls 55-60% of its original price but who knows].