options (finance)

[SlowHabit]

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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.

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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.

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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.

[EmpireMaker2]

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.

[APXG]

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"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?

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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.

[Kirkrrr]

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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.

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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.


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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 $$$?

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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.

[z28dreams]

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.

[SlowHabit]

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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.

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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.

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

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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 $$$?

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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.

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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.

[rock1]

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.

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

[SlowHabit]

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."

[guids]

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.

[rock1]

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...