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Old 05-21-2010, 04:16 PM   #161
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Dixonge I admit that even though I have no idea what you were doing with your money, I was hoping it worked for you. And I give you all the credit in the world for reporting on the outcome.
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Old 05-23-2010, 09:07 AM   #162
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Thanx for sharing.

A good friend traded options with a product called Optioneer. 4 years into it he had 60-70k in profits. Then the 08 turmiol wiped him out. Says he held his losses to 4 years of profits. Needless to say he closed his account.

But what always shocked me was the commisions the broker was collecting. Often 33% of the profits went to the broker ... and my friend had ALL the risk. That never passed the sniff test for me ... so I "steered clear".
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Old 05-23-2010, 09:19 AM   #163
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Thanks for sharing your story, dixonge. Be sure to visit with us from time to time.
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Old 05-23-2010, 10:50 AM   #164
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Thank you for sharing.

It's rare to hear some one post about their strategy that didn't work. I hope in the end you find one that does work for you.
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Old 05-23-2010, 11:35 AM   #165
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+1. It takes a big person to tell the truth, about money or a lot of other things.

Ha
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Old 05-24-2010, 10:38 AM   #166
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It would help if you could share a little more details on what went wrong, dixonge. Not in specifics but just the strategic components that ddi not work.
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Old 05-28-2010, 02:11 PM   #167
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Thanks for closing the loop, Dixonge. Too many braggarts show up here with eye-popping tales of glory and never get around to documenting their losses educations... only their profits.

Knowing now what you didn't know then, would you try an options-trading strategy again? Would you tweak it, redesign it, or avoid it altogether?
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Old 05-28-2010, 02:54 PM   #168
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Dixonge, I went back and skimmed/read this entire thread. I hadn't followed it in real time. From the first page several people took the trouble to try to point out the flaws in your strategy of gathering pennies in front of tanks. ERD50 comes to mind, and the guy who recommended Natenburg. Both these people know what they are talking about. But you appeared to not understand, and not really care to explore it further.

It isn't clear whether you lost enough money to damage your retirement plans, or if it just became clear that your self-characterized "insane plan" was just that.
Now, in your scenario of advice to a 25 year old you suggest that you might tell him that the markets are not a good place to build wealth. They are certainly not the usual place to get rich, but used sensibly they have often been a very good way to grow wealth over time, and likely the best passive way. My mind is not yet made up about whether they are a good place for retirees, or near retirees, to place money. I think it is a qualified yes- if a person is sensible, if s/he is overfinanced, and if s/he is willing to study and spend some time creating a good understanding of markets, and perhaps even more important, of one's own interactions with the markets.

So your summary to the 25 year old is based on a continued misunderstanding. In any game, to win you have to be taking only positive expectation bets. That does not mean that you will win all or even most of them, but ex ante each bet must be a winner when judged by mathematical expectation. Your option game was based on a confusion of frequency with expectation. It really doesn't matter if you win 99 in a row if #100 kills you, as you found out. But there are easier ways to find out, and usually they involve study and investigation before stepping up to the betting window.

I am not trying to promote the stock market, to you or to anyone else. Success does take a certain attitude, and I believe that it also takes axioms that are fundamentally sound.

Generally people who come here with a fixation on some theory have something to sell. You did not, and apparently do not.

So what gives?

Ha
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Old 05-30-2010, 12:25 AM   #169
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It would help if you could share a little more details on what went wrong, dixonge. Not in specifics but just the strategic components that ddi not work.
One thing I was looking for was a strategy that did not require my attention at all hours. Stop loss triggers theoretically solve this, but in reality they result in either churn or big losses or limit trades that get blown by and never execute. The net result is that I did end up watching the market all day during times of increased volatility. This in turn causes emotion to become a much bigger factor.

I was attempting to make 2.5% while staying as far OTM as possible. But when the market drops you end up making decisions like "lose 5000 now and risk doing so for nothing, or lose nothing now but risk losing 15,000 later.". This particular system worked well for awhile, but recent volatility has meant frequent decisions like that. My risk tolerance has been breached severely.
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Old 05-30-2010, 12:31 AM   #170
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Thanks for closing the loop, Dixonge. Too many braggarts show up here with eye-popping tales of glory and never get around to documenting their losses educations... only their profits.

Knowing now what you didn't know then, would you try an options-trading strategy again? Would you tweak it, redesign it, or avoid it altogether?
Most option strategies are leveraged and directional. You fight time decay and only one market direction will offset this decay with a gain. OTM credit spreads benefit from decay and are much less directional, but it appears that an appropriate risk level is reached near where the commissions erase the profit.

I do not plan on doing any more equity-related investments again.
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Old 05-30-2010, 12:58 AM   #171
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It isn't clear whether you lost enough money to damage your retirement plans, or if it just became clear that your self-characterized "insane plan" was just that.
The 'insane' part has more to do with the total nest egg size vs. Conventional wisdom, not the investment strategy. The nest egg size and/or retirement date may shift, but not the rest of the plan.

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Now, in your scenario of advice to a 25 year old you suggest that you might tell him that the markets are not a good place to build wealth. They are certainly not the usual place to get rich, but used sensibly they have often been a very good way to grow wealth over time, and likely the best passive way.
I would now recommend getting out of debt, rent vs own and no equities. Those returns exceed equities when risk, inflation and taxes are factored in.

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So your summary to the 25 year old is based on a continued misunderstanding. In any game, to win you have to be taking only positive expectation bets. That does not mean that you will win all or even most of them, but ex ante each bet must be a winner when judged by mathematical expectation. Your option game was based on a confusion of frequency with expectation. It really doesn't matter if you win 99 in a row if #100 kills you, as you found out. But there are easier ways to find out, and usually they involve study and investigation before stepping up to the betting window.
This mischaracterizes my understanding. I am not saying that pros can not manage money and position size, etc. in order to avoid being wiped out by the losing positions. It can be done. But I was unable to do so while working during all market hours.
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Old 05-30-2010, 09:44 AM   #172
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I would now recommend getting out of debt, rent vs own and no equities. Those returns exceed equities when risk, inflation and taxes are factored in.
Again, thanks for coming back to share your (unfortunately unfortunate) experience, it is quite refreshing and admirable. But it is how we all learn.

Unfortunately, I think you are now making a second mistake. Your bad experience with options has turned you off from the market altogether. This one could take much longer than a year to learn from, and by then it may be too late to adjust. Or like many others, you adjust at precisely the wrong time.

While most of the forum is pretty conservative and content with some basic AA and Buy&Hold (which is fine), there are a few of us still looking for an edge. We've been around too long and seen too much to expect a 'silver bullet', but we keep looking for something that might eek out a few percent or lower the risk or some combo. But I don't think anyone can provide good data that says ignore equities (unless they cherry-pick the dates). Think about it.

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Old 05-30-2010, 09:52 AM   #173
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But I don't think anyone can provide good data that says ignore equities (unless they cherry-pick the dates). Think about it.

-ERD50
I respect your opinion and would like to hear what you think about decreasing the percentage of equities as you get older. Seems to me a heavy allocation of equities makes less sense to someone in their 60s or older. Less time to bounce back from a downturn. Are you "age adjusting" your portfolio as time goes by?
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Old 05-30-2010, 10:14 AM   #174
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...I would now recommend getting out of debt, rent vs own and no equities. Those returns exceed equities when risk, inflation and taxes are factored in.
How much of this is colored by the market behaviour in the last year or so?

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...This mischaracterizes my understanding. I am not saying that pros can not manage money and position size, etc. in order to avoid being wiped out by the losing positions. It can be done. But I was unable to do so while working during all market hours.
Why not just conclude that options trading is not for the amateur?
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Old 05-30-2010, 11:57 AM   #175
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How much of this is colored by the market behaviour in the last year or so?


Why not just conclude that options trading is not for the amateur?
It can be very trying for the so-called pros too. Remember Victor Niederhoffer? He is a very smart guy who liked to take the high frequency payoffs of selling options and doing spreads that depended on the fact that most options expire worthless. Then he got absolutely massacred and was for a time out of the game. His counterparty to a lot of these trades was Taleb. For the most part, I would not want to be opposite to Nassim Taleb.

I think selling time is a very smart strategy if the professional can attract enough money that his own capital contribution becomes small. The steady attractive returns easily attract investors and the manager if he understands the game can keep taking a handsome rake in cash. Then when the train wreck comes, he is pretty much off the train.

Typical sensible index type investing works fairly well no matter how sophisticated or naive the investor is.

Other areas often are more demanding of thoughtfull analysis. A lot more.

Ha
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Old 05-30-2010, 02:38 PM   #176
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... would like to hear what you think about decreasing the percentage of equities as you get older. ... Are you "age adjusting" your portfolio as time goes by?
I guess I'll cross that bridge as I come to it, and just try to determine what AA makes sense for the NW and life expectancy I estimate at that point. I've found it interesting that the FireCalc runs are not really very sensitive to AA - a wide range gives similar results.

Now, if my NW declines to the point that I feel I need to get 'safer' with a more conservative AA I still run the risk of inflation eating that up. But having fewer years ahead of me, that might be OK. I pretty much expect I'll keep 60-70% in equities throughout, but who knows? If in my later years, my NW is at the point that I anticipate leaving something significant to my kids, I'd kind of treat the money as 'theirs', and at their age it should probably be invested fairly aggressively.

I guess that's not an answer, just my rambling thoughts on the subject as I anticipate some BBQ and cold beer by the lake in a few minutes. Happy Memorial Day Eve!

-ERD50
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Old 05-30-2010, 03:15 PM   #177
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dixonge

First, let me say that I have enjoyed this thread as much as any I have participated in since joining this forum.

In your post #156, you mention the market closing Thursday at 1071 and opening Friday (settlement) at 1051. I am curious what the strikes of the expiring SPX credit spread were?
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Old 05-30-2010, 03:42 PM   #178
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Unfortunately, I think you are now making a second mistake. Your bad experience with options has turned you off from the market altogether. This one could take much longer than a year to learn from, and by then it may be too late to adjust. Or like many others, you adjust at precisely the wrong time.
I have a tendency to think in absolute terms. Everything is either black or white, all or nothing. I blame it on my fundamentalist religious upbringing, and perhaps a touch on my mild case of ADD. Being aware of this, however, does not make it easier to moderate my feelings. This was an attempt to take savings and boost the dollar amount in the short term, as well as protect the principle over the next five years or so while providing income. I have shifted to other ideas for attempting to achieve similar results.....none of which involve the risk of losing 30% of my nest egg literally overnight.

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While most of the forum is pretty conservative and content with some basic AA and Buy&Hold (which is fine), there are a few of us still looking for an edge. We've been around too long and seen too much to expect a 'silver bullet', but we keep looking for something that might eek out a few percent or lower the risk or some combo. But I don't think anyone can provide good data that says ignore equities (unless they cherry-pick the dates). Think about it.

-ERD50
I used to believe that home ownership could easily be justified as both a financially wise move and a long-term investment. It is established conventional wisdom. I no longer believe this. In similar fashion I feel as if I am being disabused of the notion that equities is a good long-term investment. You mention cherry-picking the dates, and yet what if those are the dates of your market entry and retirement in real-life? Are we not cherry picking dates when we attempt to show steady 7-8% gains over the history of Wall St.? Are we not ignoring all of the many legal and financial changes over the last century? The changes in the last decade alone should give one pause when looking at statistics from 1940...

If you got back in near the bottom in early 2009 you were probably pretty happy up until at least the last month or two. But what if you got into the market since March of 1998? You would be break-even or at a loss depending on the timing...

Steady gains appears to be very elusive during that stretch, especially if you look at one lump-sum investment and track it.

I would be interested to see a chart looking at a dollar-cost average approach during the last 10-15 years.
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Old 05-30-2010, 03:52 PM   #179
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dixonge

First, let me say that I have enjoyed this thread as much as any I have participated in since joining this forum.

In your post #156, you mention the market closing Thursday at 1071 and opening Friday (settlement) at 1051. I am curious what the strikes of the expiring SPX credit spread were?
1060/1050, of course. I had managed to lose track of what amounted to four positions' worth of spreads - 20 contracts in all. I had thought I had moved all spreads that I deemed 'too close' down to other values. I missed that one, and by the time I discovered it I made the decision to leave it. I was almost 15 points away from break-even at the close, so that seemed reasonably safe.



This was a 'last straw' event. The last two months were rough and already had me thinking about pulling out of credit spreads. That Friday morning just removed all doubt.
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Old 05-30-2010, 03:55 PM   #180
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Dionge,

Thank you for publishing your experience. It is a brave thing to do.

Sometimes high-risk strategies do work. That was also a brave thing to do. Trying to work full time at the same time made it much more difficult. I sympathize.

Your Plan A is interesting. It brings to mind George and Tioga (?) and others. It is a realistic possibility.

You ain't alone. Our situations are different only in scale. My DW may not get the retirement she wants for us.

Best wishes to you. We would be interested in how things go from here.
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