You cannot manufacture EV where none exists by using a betting system, no matter how you set the conditions. This has been known for centuries.

Consider a random walk, where each tick has an equal chance of being up or down of one unit, as per the result of a flip of a fair coin. There is no slippage, friction, commissions, spreads, and instant fills. Each trade can be decomposed into a series of independent trades, where every decision to hold a position for another tick is replaced by closing the trade and instantly reopening in the same direction. No matter how you place your stops, or trail them, or anything, your EV is simply the sum of a bunch of zero EV coin flips, i.e. zero.

In a real market, can you gain an edge by something like "tight stops and wide targets"? Only if you can identify situations where the market trends more than a random walk does, and by enough to cover trading costs.

Your hunch/intuitions are completely ****ed. That is what is interesting here. What is wrong in your brain that you haven't picked up, by osmosis, very basic and intuitive truths about the universe, and logic itself? You're by no means alone on this but I find it fascinating. Other people fail to pick up basic ideas like conservation of mass and energy, basic game theory ideas, etc.

No, not at all. Shannon's demon only works on this:
Which is not a typical random walk as the magnitude is different. It's always "up by $100, down by $50", which has a volatility edge in it which the system exploits. When you're high you miss 50% of the downside and when you're low you miss 50% of the upside. But downside on high >>>> upside on low. This is why Shannon's Demon has an edge.

You're conflating arguments, and I make no such claim. From the perspective of an edge obtainable, I think the markets are highly inefficient to highly intelligent minds and as good as efficient to less intelligent minds.
Yes. What you're missing is that you totally ****ing up random walks is instructive on how you're gonna totally **** up things that aren't random walks. Think about what it says that your intuition says that you can design a system that can exploit a random walk.

Well, I decided to open an options account. The best way to learn is to just get in and start doing, right? My inaugural positions are:

Bought $8 call SNAP 4/18/19 for $0.84 limit
Bought $11.50 call CZR 10/26/18 for $.15 limit

I have literally no idea what I’m doing so this should be fun

The fact that rand can believe in this thought process gives me faith that the market will stay profitably tradeable for a long time.

tooth is mostly right except for 2 things

Shannon's demon doesn't have edge, it sacrifices some edge (in the extreme outcomes) to smooth returns 99% of the time.

OP should not be trading options. FX efficiency is a feature. Options are far more beatable but OP is a huge favorite to lose all his money rapidly.

Op is gonna trade no matter what so he may as well trade the thing that can make him a millionaire with a 2-4 lucky trades.

Im glad to hear it about the markets.

As for my idea on random walks, a mundane example is Martingaleling, which I have already mentioned though maybe in a different thread?

It assume an unlimited bank roll. But since this is a thought experiment I don't see a problem with that. The system never losses. If your first trade is down, double down until you get even. Its up, quit.

I wouldn't call this exploiting randomness, it would be more like finding your way through a maze. But yeah. Clearly its possible...

Have you considered the relationship between commissions and what you are trading?

IDK who your broker is but if you are paying a $5-10 for a trade and trading a one lot for a $0.15 debit...you have to have a huge edge for this to be profitable. You have to have a pretty big edge even if you are only paying $1 to trade a 1 lot.

If the market has some inefficiencies, edges are possible. But they likely are not big enough edges for a strategy like this to be profitable long term.

If you get a $0.30 credit on a one lot (doubling your money) you've made $15 (not counting commissions). $150 on a 10 lot.

There is nothing wrong with trading 1 contract if your commission structure is low enough. But +EV strategy wise can mean -EV bottom line with the rake.

You probably bought these options and chose these underlyings because you felt that they are all you can afford given your account size. This may well be true. But therein lies the rub...

I think your time would be more constructively spent at a $5 blackjack table.
At least you get comps.

I’m probably just going to trade a little of both to be honest and ditch the idea of the e-minis. I’ve been thinking of Rand’s comment that you’ll never properly learn or conduct yourself the right way when you’re trading with an account that doesn’t mean anything to you. So in regards to forex - I need to either ditch it for good or give it a go with a similar approach to when I started with a meaningful amount.

I started the account on Robinhood since I already had the app and knew that with a smaller account size I would need to avoid as much fees as possible.

I think your time would be more constructively spent in another thread.

Options are like playing at poker table with zero blinds, 20%/rake and everyone autocalls if you push all in.

Your range should be AA, KK, and you shouldn't play very often. Your goal is high probability high payoff geometric returns with low risk of ruin.

Sounds great... once you get to the point where you know what AA or KK look like.

Are any of these worth picking up? https://www.investopedia.com/article...ion-trader.asp

The books are a waste of time. Options are a way to bet on a theory.

I think XYZ is likely to be at $$$ by MM/DD/YY because [Very compelling reason]

If you don't have theories, there's no point in playing options.

The math is trivial and the greeks are pointless. If you're learning greeks, which the books teach you, you're doing options wrong. Quick intuitive rules of thumb are all you need to understand options. In fact if you have a non-****** mind, how options work should jump out at you and be obvious. Just watch them move as the stock price moves intraday. It'll all be very obvious soon enough.

Why did you buy these?
How much do you think they are worth?
Why did someone else take the other side?

Would his post have been more correct or less wrong if he had been more polite to you?

What was it that made you realize that it was a boneheaded trade? Hell, it could have been a good trade that went awry. The point being here, is that you'll improve greatly by realizing the fact that you may not know what the **** your doing most of the time. Some people cant admit that - thus seize their learning.

As far as the SNAP play, I feel like it’s too popular a platform to just nose dive to the gutter.

Caesar’s Ent... just taking a shot at buying the rumor on the potential merger news. There was a good little pop last week. It could have a chance to go a little farther perhaps.

What he said was neither right or wrong. It’s his opinion. And that’s fine, but literally everything the guy has said in this thread has been along these lines. At least TS in his dickishness offers some nuggets of wisdom here and there.

See post #319 itt as to why it was clearly a boneheaded mistake

Another question, why were you better served using this logic to buy a call vs buying stock? Hopefully it’s not just the leverage/gamble value

You didn’t answer the other 2 more important questions

You were still up 500% after that trade and in fact got nearly all of it back with a very lucky run the other way, $400 or so soon after.

The simple fact that you were playing a 0 EV game that was highly negative once rake was accounted for. You didn't play well, you didn't play badly, you rode a random walk until the rake killed you. Indeed, you ended up paying $400 or so in rake even on your massive heater, amply proving my point that you were drawing dead.

All of your narratives about good and bad trading, revenge trading, going on tilt, etc are pure post hoc rationalizations that have no basis in fact. You will never accept this because it makes you completely and comically insane, but money ultimately flows to those with the most clear-headed view of the situation, so you might want to work on that.

Obviously, to limit downside risk in the event that I am disasterously wrong in regards to those theories.

As far as the other two questions - I don’t really have good answers for them. Which is kind of to be expected given that I have never traded outside of the forex market prior to this.

You’ve sang this tune before.

And what I pointed out in post #250, you had nothing to say to. The gross amount of rake I paid was as much to do with my trade frequency as it was FX as a whole. I pay a little more than the average for an ECN straight-thru processing broker. When you compound that with the frequency at which I was trading, you get a lot of rake paid. It was definitely eye-opening and if I were to make a run at FX again it would either have to be with a non-ECN broker or far lower trade frequency. But my point is - what you saw in my “random walk” is not at all typical in regards to FX rake.

Thats not all that obvious to me. Your theory is that there might be a takeover in ceasers. Being disastrously wrong would mean there is no takeover in the next week. Conceivably your option could lose more than the stock in that scenario

Based on the information you've provided it doesn't seem that you weren't sure you made a +ev trade at the moment, and also aren't sure in hindsight. Which means you're probably losing money. Which can be ok if you learn something from it, will be interesting to see if you do.

Admittedly, understanding the EV implications of nearly any move I currently make in equities is going to be my biggest leak. Which is why I put off getting into it for so long and have been stubbornly trying to make something happen in FX.

No one really understands the EV of their decisions in the markets...This is also true in poker. What you have is a model of probability, a distribution (standard deviations are used a lot in options), etc. Then you also have a risk to reward ratio.

So just like in poker, you need to know (be able to estimate) your risk / reward and the probability of each. But, unlike in poker, you need to understand time, the environment is not static. Even though your stop wasn't hit, maybe you should exit bc of X. The crux of my theory depended on not(X), so now that X is true, I was wrong.

Further, if you are long or short premium, in other words, not theta neutral, you need to understand what happens to your position as time passes.

Same is true for IV and rates.

IV, expected move, average true range. These are all similar ideas. If the expected move in AAPL is $10 this week, its unreasonable to have a target of $230 if you went into the trade with an investment horizon of 4 hours.

Thank you for that, Rand. Beyond the poker analogies, most of it is going over my head, unfortunately. I’m planning on going through the CBOE’s education section of their website (probably already should have)

What is your opinion on TS’s take that the Greeks are pointless?