Market Curiosity: Exploring Markets And Systems

February 9, 2011

Love And Options, Nassim Taleb; Options Writing Mistakes To Avoid

Filed under: Just Watching, Short Calls, Short Puts — Tags: — Jeff Fitzmyers @ 10:44 am

Love And Options, Nassim N. Taleb
Why did you find options so attractive?
Because they are nonlinear in their payoffs. They seem to require a lot of complex mathematics, but in reality, we can figure them far more effectively with a diligent use of guts. With some imagination, you can mentally play with their payoff and develop intuition for how they work.

What did you observe?
I noticed that options had a tendency of sucking in very intelligent people and blowing them up. The smarter the person, the more spectacular the blowup.

Options Writing Mistakes To Avoid, James Cordier and Michael Gross
…option selling is becoming a popular choice among high net worth investors and traders. This has been mainly because of the strategy’s high probabilities of success on individual trades, ability to generate reliable income and positive performance in all types of market conditions… Experience shows, however, that not doing the wrong things will have as much, if not more, an impact on your portfolio’s ultimate performance than doing all of the right things. Therefore, we can learn a lot from the errors of others.
– Mistake one: Over-positioning
– Mistake two: Selling too close to the money
– Mistake three: No exit plan

The article also has this nifty chart:

Leave a Comment »

No comments yet.

RSS feed for comments on this post. TrackBack URI

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Blog at WordPress.com.

%d bloggers like this: