Impact of 'Random' events on options - ASX info

[RichKid]

A recent article from an ASX newsletter, might be of interest to some, also has some tax info on share buybacks and capital returns: http://www.asx.com.au/investor/options/how/library/fooled_by_randomness.htm

Fooled by Randomness
Fooled by Randomness author Nassim Nicholas Taleb a market trader and professional skeptic has seen innumerable traders go to the wall - "blow up", in the picturesque jargon of the trade. "No-one could have predicted that", they say, sadly shaking their heads as they leave the trading floor. They have been fooled by randomness.

Whether you believe “out of left field events” are truly random or not, is a moot point. The fact that they occur and with devastating consequences for traders is cause for concern. This article looks at events that fall into the random category in the options market.

After reading this article you should understand:

* The effect of after expiry news events
* Buy backs and their effect on options exercise
* Implications for options where a stock is suspended.....

 

[wayneL]

Re: Impact of 'Random' events on options- ASX info

Yes indeed!!!!! There are fat tails everywhere you look in financial markets.

Open ended risk on individual securities is deadly.

He writes an interesting article this chap, here's a couple from his own site that are interesting.

The Opiates of the Middle Classes
Risk Gurus as Charlatans

Other good stuff at his site:

www.fooledbyrandomness.com

 

[RichKid]

Re: Impact of 'Random' events on options- ASX info

Yes indeed!!!!! There are fat tails everywhere you look in financial markets.

Open ended risk on individual securities is deadly.

He writes an interesting article this chap, here's a couple from his own site that are interesting.

The Opiates of the Middle Classes
Risk Gurus as Charlatans

Other good stuff at his site:

www.fooledbyrandomness.com

Looks like I have found a devotee! I've heard of Taleb before but haven't really read his stuff, must look into it, thanks for the details. But how can pros 'blow up' if they've diversified properly and use good money management, even if it's with options? I'll do more reading to find out....

 

[ice]

Re: Impact of 'Random' events on options- ASX info

Hmm, thought I was the only devotee considering some of the flak he receives.

Someone who had no interest in the markets pointed me to Blowing Up as an interesting article

http://www.gladwell.com/2002/2002_04_29_a_blowingup.htm

and it changed my trading life. I now (try to) look at everything from a Nassim Taleb perspective.

A brilliant man imo, though his trading style isn't for everyone.

PS 'Fooled by Randomness" is a great read too.


ice

 

[happytrader]

Re: Impact of 'Random' events on options- ASX info

Thanks for the great articles Richkid, Wayne and Ice.

That bit about Soros vehemently bearish and then changing his mind made me laugh.

The truest thing about Soros is what his son Robert said:

"My father will sit down and give you theories to explain why he does this or that. But I remember seeing it as a kid and thinking, Jesus Christ at least half of this is bull****. I mean, you know the reason he changes the position on the market or whatever is because his back starts killing him. It has nothing to do with reason. He literally goes into a spasm, and its this early warning system"

I never knew what that term 'gut feel' meant until I learnt to trade. The point being, your eye can lie to you and change the picture to allow to see what you want to see, thereby allowing you to rationalise your actions.

Although my system is mechanical, if I'm not sure about an early exit my stomach always tells me. I've learnt to listen and jump ship.

Cheers
Happytrader