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13/51
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This is the second installment of my multi-part series, trading for income. In the first part we discussed a popular forex trading strategy, the carry trade. This time around we’ll talk about options, specifically selling options for income.
Options Basics
An option gives the buyer the right but not the obligation to buy or sell a security at a specified price. A CALL option gives the buyer the right to buy a stock at a specified price. A PUT option gives the buyer the right to sell a stock at the option price. A CALL is a bet on rising prices while a PUT is a bet on more losses.
For example, let’s say you buy a CALL option on Apple (APPL) at 130 dollars. The current price of the stock is at $105.97. On the picture below we can see the option chain for AAPL stock with an expiry in June, about 57 days from today. Note that the bid/ask spread for this particular option is 0.08/0.10 (the highlighted part).
Buying this option would cost you only 10 cents. But note the second percentage column, it gives you an approximate probability of your options expiring ‘Out of the Money’. In layman terms, this means that according to the option pricing model, you have a 98.18% of getting 0 at …
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fxsurprise8 avatar

rajib217 zarina Yulia10 Thanks friends!

TaniaS avatar
TaniaS 5 May

Very interesting article

olchikk avatar
olchikk 6 May

отлично написано

fxsurprise8 avatar

TaniaS olchikk gracias chicas

Agnessa26 avatar

Good job)

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4/40
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Most, if not all, serious traders are certain about the fact that psychology and the effects of individual psychological traits, profoundly affects the outcome of financial trading. Yet, few understand how it can be governed; worked with, let alone how to train it, or, if it’s to be trained at all?
Some believe that the psychological factors in trading can be excluded by automated trading. Well, as will be explained in a later article, most of you will be in for a rather big surprise!
I’ve teamed up with some of the leading authorities in aviation- and management psychology to build tools for assessing traders and their psychological aptitude to develop as successful traders. We have statistically validated and verified data that identify certain personal traits that will make you a successful trader or not. Amongst others, this has been done on live trading floors with professional traders. The results reveal strengths for the individual trader and what weaknesses that can be trained or should be avoided, all together.
Which would these traits be? The fact is that there are several. Well, here are a few examples that may be already known to you. 1) Intelligence, high-IQ, being a …
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Convallium avatar
Convallium 16 Mar.

Great article! I agree with it! We need about 10.000 hours playing chess to master it. So the same in trading)

Alisitas avatar
Alisitas 16 Mar.

Interesting vision!

vv2011 avatar
vv2011 17 Mar.

I like it)

Airmike avatar
Airmike 22 Mar.

Article is nice, but I see that many of the guys you mentioned at article wrote about psychology and stuff like that are extremely sure about their ultimate true. My opinion is, that they have just an opinion and they believe that's true. for example I agree with most of the things in article but I don't think that trading is a right word for classification of speculation . there is plenty of trading styles which are more sensitive to other skills. and i am not sure if opinion developed especially for speculations is ultimate true for other participants in the market. 

Fundamental avatar

Hello! Thank you for elaborating in detail about the article. True, some believe that trading is speculation or even 'pure speculation'. I am completely agree with you that we as traders  don't see ourselves as specultators, but work with  professional methods. In my second article I explain when and where I believe Kahneman and Taleb are wrong. On the other hand, if you did'nt know. I am citing Kahneman because he is a Nobel prize laureate, in economic psychology. There are actually  several hundered scientific projects that have been run to prove what they're saying.

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14/40
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I surmise both Kahneman and Taleb would argue, that Sullenberger was lucky! True, but that simply does not cut it! Luck had nothing to do with the fact that all passengers and crew survived. This was formidable skill at the very pinnacle of human capacity! Another less experienced pilot would, more probably, have gotten them all killed.
So, where does this leave us as traders? First, if you think for a second that you could dream up a formula that will quickly double your recent funds from auntie’s 500.000 dollar inheritance in a matter of weeks, or even in a year. Try golf, you’ll be better off – or at least have more fun spraying the dough! If you’re not committed enough to put your back into real hard work to learn the skills of trading, you will never survive, nor will a pilot or an athlete in their ‘offices’.
Here is why. As slim as the margins are in an Olympic 400 m sprint, as minute are the differences in success or failure in entering a bid or ask contract in the markets, on the right side! It is even harder getting out once you found out that it was indeed on the wrong side. Worse, still, keeping the winners going if you were on the right side of the trade!
So, would you …
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jezz avatar
jezz 12 Mar.

Good start. I always like a good read on psychology. After all, it is our greatest enemy. I'm looking forward for the next one

olga avatar
olga 16 Mar.

I really enjoyed the discussion. I like the expression ‘low validity environment’, but I disagree that any time-frame is ever really regular. I’d see “skill” for forex as the ability to learn and adapt, and on those terms, the environment can be statistically regular. You cannot build a static model to describe forex but I believe you can build an accurate model as long as it’s based on constant adaptation and learning.Anyhow that's what I think. Both articles are very well written with interesting references and an interesting point of view.

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2/47
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Premise:Lets consider to start with, that we are given $500. We are given the option to trade and we have a 99.9% chance to gains $1, but at the same time we have a probability of 0.1% that we lose all $500. This trade seems like a no-brainer and lets be honest most rational humans would take this trade, now why is this, and why does this cause problems? Well you would not be wrong in terms of probabilistic returns that this trade would work well, if we were to trade 1,000 during the year the maths would suggest that we win 999 times and lose once. This equates to a $999 gross profit and $500 loss. This leads to a net profit of $499 - 99.8% profit. Because of this very simple maths, we would take this trade no questions asked after all there is a 0.1% to lose. The problem occurs that humans are greedy, and while famously stated that "greed is good" it can also cloud our judgement. Why is this? well once we make a trade, we consider another scenario with the same parameters $1 gain with a probability of 99.9% etc, and of course we take this once again. This goes on and on... all the way until one almost assumes that there is no risk and that we have a 100% chance of success.This of …
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AdrianWS avatar
AdrianWS 16 July

@jetaro this is absolutely true, all numbers in forex. However use of RSI, stochs, MA's candles etc can push the probability marginally in your favour i.e. 55/45 or 60/40 and this is what is key - I use a derivative of this idea but of course I combine Technical analysis to it and not just simply maths. But I know physicists and mathematicians that have no economically/trading experience that trade on methods like this and it does work.

Sergei2 avatar
Sergei2 16 July

Don't get me wrong, I really think your idea is bright and it has a big potential! Basically, we're using well known fact, that a probability of a tiny movement (i.e. 2p.) are disproportionately high regarding the probability of ultra-large movement (600 p.). If not for spread, this alone would be profitable tactic (with the premise, that a lose occurs in less then 1.5 year).. I'll continue to think about this method, thanks :)

Sergei2 avatar
Sergei2 16 July

Ok, I double-checked my backtesting results (in MT4 with 90%) and immediately have found an error (actual candle would not gave the result that is shown in Results tab), so all this 9 losses probably was just my noob mistake all alone, sorry for that lol

xtrader360 avatar
xtrader360 16 July

Excellent job!!!

Victor avatar
Victor 17 July

very nicely written (black/white swan) but as you already mentioned it comes with assumption. But I thik it is worth attempting

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