17 lines
1.1 KiB
Plaintext
17 lines
1.1 KiB
Plaintext
These long-option or short-option biases hold for other types of strategies
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as well. Volatility-selling positions, such as the iron condor, can be
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constructed to have limited risk. The paradigm for these strategies is they
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tend to produce winners more often than not. But when the position loses,
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the trader loses more than he would stand to profit if the trade worked out
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favorably.
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Herein lies the issue of preference. Long-option traders would rather trade
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Babe Ruth–style. For years, Babe Ruth was the record holder for the most
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home runs. At the same time, he was also the record holder for the most
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strikeouts. The born fighters that are option buyers accept the fact that they
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will have more strikeouts, possibly many more strikeouts, than winning
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trades. But the strategy dictates that the profit on one winner more than
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makes up for the string of small losers.
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Short-option traders, conversely, like to have everything cool and
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copacetic. They like the warm and fuzzy feeling they get from the fact that
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month after month they tend to generate winners. The occasional loser that
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nullifies a few months of profits is all part of the game. |