Our review of Microsoft Excel for Stock and Option Traders: Build Your Own Analytical Tools for Higher Returns by Jeff Augen is slated for October SFO magazine. (Free subscription)
Showing posts with label REVIEW. Show all posts
Showing posts with label REVIEW. Show all posts
Tuesday, September 6, 2011
October SFO magazine will include our review of new Excel for options book
Wednesday, January 5, 2011
Book review: Iron Condor: neutral strategy for uncommon profit
by ERNIE ZERENNER & Michael Phillips, Marketplace Books, Glenelg, Maryland
Our favorite part of Iron Condor: neutral strategy for uncommon profit was the track record. We are rather partial to track records, not everybody provides one, but they surely should. The authors' track record was somewhat buried in Chapter 6, in fact the thought occurred that this should be moved up to Ch. 1 to command the reader’s attention and diligence going forward. It cites results from 2005 to 2009, as follows:
Otherwise, a rather general book, with a few good nuggets strewn throughout, that seems more an introduction to the author’s newsletters than hard-core instruction.
On page 3, the authors begin as follows: “A significant amount of stock option literature tends to focus heavily on the Greeks; Delta, Gamma, Vega, Theta, etc. The Greek-related material proffered by many financial authors sounds sophisticated and intelligent, but in reality, an average reader is often left confused and bewildered by the material presented. In this book, discussions related to the “Greeks” will be avoided in order to offer practical information that any reader can understand.”
Not only are Greeks not employed, neither are formulas for things the authors use like “probability of success.” We were concerned; it's a bit like your pilot saying right before take off, I dispense with all this instrumentation, I prefer to fly 'visual only.' Still, somewhat hesitantly, knowing better, we boarded the flight.
We knew full well that only anecdotal generalities can follow without these precise mathematical tools, greeks and probabilities. And they do.
The risk management system here is based on a concept of exiting at 1% from the short strike, e.g. If your short put strike is 1100 on the SPX, on the way down, take off the short put credit spread at 1111. This would be nearly 50 delta, compared to other mentors’ teaching about exiting or rolling at 25 delta, so this method is going to generate a lot more short term pain, i.e. paper losses. This is not explained.
While the pace of change in the options industry is fairly staggering, and accelerating, we must point out here that the text is abundant with obsolete information, including options symbology, and commissions (no mention of low rates from firms like OptionsHouse), and capability (there is exactly one mention of thinkorswim, which has emerged, according to most serious options traders, as the tech leader in the options brokerage field, and no discussion of what TOS can do.) The claim, “As of the writing of this book, optionsXpress and tradeMONSTER are known to provide contingent orders based on the price of the underlying equity,” leaves out TOS, and OH. TOS, e.g., has possibly has more capability in contingent orders than anyone, extending to volatilities, technical analysis, bids, asks, marks, etc.
In place of due diligence, we have a generous helping of self-serving direction to the author’s own software: “Investors should carefully investigate and evaluate brokers and third-party option tools, like PowerOptions (theirs), for trading iron condors.” Also: “Investors new to options might also consider an advisory newsletter service, like PowerOptionsApplied (theirs again).” No mention of anyone else, the words “Optionvue,” “Sheridan,” or “mentor” don’t arise here.
Curious that the last chapter mentions double diagonals, and butterflies, but not calendars, one of the easiest, most durable, and commission-light vehicles. Word "calendar" not found in text.
In recent months, many iron condor exponents have lamented the low volatilities that make adjusting (“rolling”) an iron condor position an unprofitable exercise. No discussion of that situation here, sorry to say.
This text is a reminder that the options strategist has to undertake his or her due diligence as much towards the reading matter of which they partake as they do with respect to market positions. There are a couple of things worth considering, but by and large, there is simply not enough here to justify the time or the $19.95 price (discounted on Amazon).
Postscript re track records: here's another track record, this one from the Options Linebacker service. Every such mentor should have a record.html page or similar, wouldn't you agree?
Our favorite part of Iron Condor: neutral strategy for uncommon profit was the track record. We are rather partial to track records, not everybody provides one, but they surely should. The authors' track record was somewhat buried in Chapter 6, in fact the thought occurred that this should be moved up to Ch. 1 to command the reader’s attention and diligence going forward. It cites results from 2005 to 2009, as follows:
- Meridian 2-4% max expected profit per month, yearly performance: 85% 41% 13% 29% 43%
- Optimum 6-8% max expected profit per month, yearly performance: 79% 81% 45% 53% 107%
Otherwise, a rather general book, with a few good nuggets strewn throughout, that seems more an introduction to the author’s newsletters than hard-core instruction.
On page 3, the authors begin as follows: “A significant amount of stock option literature tends to focus heavily on the Greeks; Delta, Gamma, Vega, Theta, etc. The Greek-related material proffered by many financial authors sounds sophisticated and intelligent, but in reality, an average reader is often left confused and bewildered by the material presented. In this book, discussions related to the “Greeks” will be avoided in order to offer practical information that any reader can understand.”
Not only are Greeks not employed, neither are formulas for things the authors use like “probability of success.” We were concerned; it's a bit like your pilot saying right before take off, I dispense with all this instrumentation, I prefer to fly 'visual only.' Still, somewhat hesitantly, knowing better, we boarded the flight.
We knew full well that only anecdotal generalities can follow without these precise mathematical tools, greeks and probabilities. And they do.
The risk management system here is based on a concept of exiting at 1% from the short strike, e.g. If your short put strike is 1100 on the SPX, on the way down, take off the short put credit spread at 1111. This would be nearly 50 delta, compared to other mentors’ teaching about exiting or rolling at 25 delta, so this method is going to generate a lot more short term pain, i.e. paper losses. This is not explained.
While the pace of change in the options industry is fairly staggering, and accelerating, we must point out here that the text is abundant with obsolete information, including options symbology, and commissions (no mention of low rates from firms like OptionsHouse), and capability (there is exactly one mention of thinkorswim, which has emerged, according to most serious options traders, as the tech leader in the options brokerage field, and no discussion of what TOS can do.) The claim, “As of the writing of this book, optionsXpress and tradeMONSTER are known to provide contingent orders based on the price of the underlying equity,” leaves out TOS, and OH. TOS, e.g., has possibly has more capability in contingent orders than anyone, extending to volatilities, technical analysis, bids, asks, marks, etc.
In place of due diligence, we have a generous helping of self-serving direction to the author’s own software: “Investors should carefully investigate and evaluate brokers and third-party option tools, like PowerOptions (theirs), for trading iron condors.” Also: “Investors new to options might also consider an advisory newsletter service, like PowerOptionsApplied (theirs again).” No mention of anyone else, the words “Optionvue,” “Sheridan,” or “mentor” don’t arise here.
Curious that the last chapter mentions double diagonals, and butterflies, but not calendars, one of the easiest, most durable, and commission-light vehicles. Word "calendar" not found in text.
In recent months, many iron condor exponents have lamented the low volatilities that make adjusting (“rolling”) an iron condor position an unprofitable exercise. No discussion of that situation here, sorry to say.
This text is a reminder that the options strategist has to undertake his or her due diligence as much towards the reading matter of which they partake as they do with respect to market positions. There are a couple of things worth considering, but by and large, there is simply not enough here to justify the time or the $19.95 price (discounted on Amazon).
Postscript re track records: here's another track record, this one from the Options Linebacker service. Every such mentor should have a record.html page or similar, wouldn't you agree?
Saturday, January 1, 2011
Best of 2010: The Quants by Scott Patterson
The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It, by Wall Street Journal reporter Scott Patterson, is the inside baseball story of the quest for The Truth on Wall Street. That is, the fountain of money that never stops flowing.
-- As made manifest from the odds, the probabilities.
-- As interpreted by the "quants," traders who believed, above all else, in the numbers, data, statistics.
And why not? That's not immediately pejorative, though Wall Street has gotten a very, very bad reputation of late. After all, odds, probabilities, are the stuff of everyday life. We don't think about them consciously. But they're there. You and I cross the street -- now -- because we see the odds of getting hit are nil. We didn't cross 10 seconds ago because we saw two semi's roaring towards us. We don't even think about these as "probabilities," per se. But they are. And for those who do think about probabilities, and in connection with financial markets, from a vast resource of education (preferably Phd) and erudition and experience, the rewards can be staggering, as in a million per minute.
Quant trading started in -- wait for it -- Las Vegas, where odds-making (not image, sorry Andre, our favorite LV homebay) is everything. This is where card counting got its start. Card counting is just probability analysis, on the fly. And card-counting, writ large, is quant trading. Card counting pioneer, Ed Thorp, was the progenitor of quant trading. Thorp begat Ken Griffin, Citadel. And on and on it went (and goes).
Some of the other featured players here include:
- Cliff Asness, Goldman Sachs, Global Alpha, group leader, and founder AQR
- Boaz Weinstein, Deutsch Bank
- Peter Muller, Morgan Stanley
Author Patterson wields a deft pen, and never fails to grab the reader at the end of a section or chapter: you have to keep reading. Very entertaining. To peel back the layers of secrecy and expose the histories, successes, failures, personal peccadilloes -- the whole story of 'the quants' -- is a very great journalistic accomplishment. THE QUANTS is not an indictment, per se, of the entire enterprise of quantitative trading, but does indict extreme leverage and the perils it presents. Interestingly, Patterson follows the founder of the practice, Ed Thorp, who turns away from over-leverage, and generates excellent returns without it.
So, as per usual with Wall Street, we come back to the question of greed. Greed is good? Maybe like alcohol or fire or nuclear energy? A little bit, the right place, the right time. Managed. To overdo here is to destroy, and the problem is, we're all on the hook for it. THE QUANTS is big, intriguing, messy, clear, ambiguous, and provocative -- just like the financial industry it covers. It is, quite simply, a must read.
PS: Talk about "destroying Wall Street", as we were reading this volume, the Dow experienced the infamous May 6, 2010, "Flash Crash," for which many explanations have been offered, but the truth? We are still waiting; Wall Street doesn't tell all its secrets, not even to Mr. Patterson. As author Patterson wraps it up: "here come the quants." Indeed.
PPS We received from a Chicago quant this youtube.com video. Another cautionary quant tale, a good one, told in large part by a quant-turned-oysterman (he lives off his interest) and we recommend it to you:
Quotable:
- "Beauty is the right level of complexity."
- "Condensing 300 pages of prose to one equation = beauty to a mathematician."
- "A major rethink is required if the world is to avoid a major mathematician-led market meltdown."
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