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Making Money A Primer to Derivatives Trading
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jj90 Offline
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Post: #26
RE: A Primer to Derivatives Trading
Let me share my experience regarding raising AUM.

In 2014 I went around and tried to raise AUM with a decent long term track record of >30% at the time and 7 years on a moderate sized account. Institutional money was not interested on the premise I had too much risk because of the returns I was posting. Yes, that's correct: they don't want you putting up good numbers because that signifies risk to them. Sure my Sharpe wasn't that great and I didn't know my Sortino, so I could have been more prepared, but hey I at least expected a round of due diligence. Never made it that far.

The reality of the situation with institutions is they want pedigree and placement. I reached out to my contacts in the institutional world and they broke it down like this: If you are a hotshot noname with good numbers that's a pass. If you are coming out of grad school with an MBA and no actual money managing experience except maybe a 10K account, here's a job at a bank asset management firm. After 5 years, maybe of you posting 5-10% absolute returns, here's a few million to get yourself started. I know guys who posted track records year/year >50% that couldn't get money allocated.

Why is this the case? 1)Size. It is true managing 100M is different from 100K.
2)Consistency. They don't want massive equity swings.
3)CYA(cover your ass). If things go wrong, they can at least say we vetted our candidate and he had the requisite background.

I also tried raising money within my contacts of HNW's. Got more progress there, based on just my P&L curve but ultimately the capital amount did not make sense. Keep in mind you are running a business here and there are operating costs.

Now I manage my portfolio and have no one to answer to. If you can post 40% year over year, you don't need OPM.

If you want to manage money professionally, your best shot is to go do an MBA and go corporate for a few years then break out. Good luck breaking in as an outsider. The vast majority of hedge fund managers broke in from the inside. For every guy you see that turned 10K into 1M and got allocated money there is 20 more who went to Harvard, Wharton, etc and make well north of >1M in comp.

I had a fintech startup in 2013(robo advising) and raising AUM there was just as difficult. Commitments up to 1M and it didn't work out. Good luck out there.
12-29-2016 01:29 PM
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Chengiz88 Offline
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Post: #27
RE: A Primer to Derivatives Trading
@JJ90 well put, am trying to raise AUM currently via contacts/HNW circle, gave a presentation before xmas and got grilled (rightly so as looking after money is sensitive issue) with questions...risk management, trading style yada yada

Anyway long story short it went well, but then to actually get folk to part with their cash that is another story. I'm still waiting for the first cheque to be sent over to my account.
12-29-2016 03:43 PM
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tomtud Offline
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Post: #28
RE: A Primer to Derivatives Trading
For those who didn't finish some Ivy League big time university mba, don't sweat it. You won't be getting a job at a big bank big deal. A retail trader has a lot of the technology and tools to succeed. No need for a Bloomberg machine at all.
For those of you who follow the forum big mike trading, a lot of it is geared towards day trading FX. As a retail trader it's hard to compete against the big boys who have faster computers, Internet connection etc if you are looking for a pip here or pip there. It can be done, just believe that an mba isn't gonna make you a millionaire.
This is why selling options IMHO is a great way a retail trader can compete. Speed isn't required. Being able to read a few charts and understand probabilities is a start. Knowing 3 Greek words, delta, Theta and gamma. No Mba required. Best of all is that you don't need to be glued to your monitor like you do if day trading the emini futures or FX.
12-29-2016 05:01 PM
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jj90 Offline
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Post: #29
RE: A Primer to Derivatives Trading
In response to tomtud above^: I think one needs to define what success means. Does it mean making millions as a hedge fund prodigy or does it mean making enough to be location independent?

I completely agree one shouldn't be competing with the big boys: on their level. It's a lot easier to make 1M on a 10M account vs a 10K account. If you think otherwise then best of luck to you brother.

BTW you missed the most important one of all: vega. Vega trumps all.
12-29-2016 06:18 PM
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TheFinalEpic Offline
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Post: #30
RE: A Primer to Derivatives Trading
(12-29-2016 06:18 PM)jj90 Wrote:  In response to tomtud above^: I think one needs to define what success means. Does it mean making millions as a hedge fund prodigy or does it mean making enough to be location independent?

I completely agree one shouldn't be competing with the big boys: on their level. It's a lot easier to make 1M on a 10M account vs a 10K account. If you think otherwise then best of luck to you brother.

BTW you missed the most important one of all: vega. Vega trumps all.

Vega is the most important, I'd agree. Implied volatility/IV rank will be the first consideration you make in purchasing or selling options to see if they are selling at a premium or discount, then you look at Delta for how close the option keeps pace with the underlying. Theta decay will then likely be your next consideration, determining what expiry date you purchase or sell (theta works in the favor of sellers, and against buyers). Finally, Gamma will be considered for how fast Delta changes, but to be quite frank, I find it to be least important.

"Money over bitches, nigga stick to the script." - Jay-Z
They gonna love me for my ambition.
12-29-2016 06:57 PM
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tomtud Offline
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Post: #31
RE: A Primer to Derivatives Trading
Jj90 good call...vega I missed....I knew I missed something.

I guess we can agree in selling options as a viable method to earn income.

Regarding level of success. It's subjective. For me personally I'd love to be location independent. On the tasty trade videos you have traders who get an ROI above 40% per year. Some more and some less.

For example, a lot of RVFs live in Colombia. As I write this......5,000,000 pesos = $1665 USD
That is a great monthly salary in Colombia. If one can crack 1500-2000 USD per month Trading options or emini futures, FX etc. You can live great there IMHO. Of course the more the merrier.
12-29-2016 08:15 PM
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Chengiz88 Offline
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Post: #32
RE: A Primer to Derivatives Trading
Tomtud - What kind of bankroll would you expect to have to clear 1-2k per month trading?
12-30-2016 03:42 AM
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tomtud Offline
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Post: #33
RE: A Primer to Derivatives Trading
That depends......if you are doing it all yourself and how good you are. 1%-2% return per month on $100k that is $1000-$2000. Now the rest is how you invest. You can maybe make more investing $50k if you are good. Now, there are traders who make more than 1-2% per month.
12-30-2016 09:50 AM
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booshala Offline
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Post: #34
RE: A Primer to Derivatives Trading
I have an employee who told me he made 120% in 2014, a little under 300% in 2015 and will likely finish 2016 slightly in the black. Like many, he thought Trump's presidency was gonna tank the market so he lost most of the first three quarters of gains in November. Naturally skeptical, I asked for proof and incredibly the numbers add up.

I've never seen a stranger trading setup than this guy, but somehow he's make it work for the past 3 years: He only trades UVXY and TVIX which are 2x leveraged funds that track volatility. Always trades strictly intraday. He uses a strange combination of watching financial news, technical analysis/charting and finally Chinese astrology to figure out "lucky times" to get in and out. He insists on using Scottrade at $7 per trade even though I've referred many cheaper alternatives, and he also refuses to leverage up even further with the 3x VIX ETF's or options. I figure if he's making that much with 2x, why not go 100x?

He's asked me to reach out to my friends in finance - in particular a buddy that has his own family $20m fund - and see if they'd be interested in helping him start something up. I'm like, "how the fuck am I gonna explain your system to them without being laughed out of the room?"
(This post was last modified: 12-30-2016 07:05 PM by booshala.)
12-30-2016 07:03 PM
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Chengiz88 Offline
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Post: #35
RE: A Primer to Derivatives Trading
@Booshala - nothing special about this. He has found a niche and style of trading that suits him and it works. You can talk about TA, charts, indicators till the cows come home, but if your execution is poor none of that ever matters. I know guys who only trades a single market every days 1-3 trades max, v large size and for a few ticks. It works for him. He randomly picks a # he likes buys and is in and out in 30-45 seconds sometimes.
12-30-2016 09:19 PM
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TheFinalEpic Offline
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Post: #36
RE: A Primer to Derivatives Trading
I think we need to define a strategy as something that is duplicable by another party (ie. if I was running a firm, I could tell my traders the strategy and they would make money). That being said, by limiting risk with properly placed stops and profit taking levels, you can do a lot and still not blow out an account. I would avoid lines of support and resistance as stop areas like the plague however, lest you be stop run by the market makers and big players.

"Money over bitches, nigga stick to the script." - Jay-Z
They gonna love me for my ambition.
12-30-2016 09:25 PM
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jj90 Offline
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Post: #37
RE: A Primer to Derivatives Trading
@booshala: Just to add my 2 cents there too, your employee needs to have made not just good coin but great coin for someone to take a look at him. I agree with Chengiz88, the actual strat won't matter all that much if he has the execution down. But to give you an idea he can't have made say 100K on a 50K account for example. He needs to have made like 500K on 50K. Somebody will take notice of that and give him a look. Sounds counter intuitive but that's the nature of the game, moderation doesn't cut it.
12-30-2016 10:23 PM
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tomzestatlu Offline
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Post: #38
RE: A Primer to Derivatives Trading
I started to look for alternative ways of getting some extra income few days ago and found CFD trading. Gathering the information is quite difficult, I am not native English speaker and the information are in different languages, that causes chaos and in the end, trading is so big area, that means there´s long way to go, until putting some real money into it.
I live in Eastern Europe, sallary here is smaller same as prices in comparison to US and western countries, ratio is maybe 1:3 or 1:4. That means the 1$ has much bigger value for me, so the first idea was to make it my advantage. I consider the fact I am only looking for some extra $ monthly (let´s say 3-10% of my sallary), that´s 30-100$. That idea was to only collect "crumbs". In very short term, the "price" (I am not sure about this term) of option is oscilating up and down quickly. My intent was to be frenquently opening and closing them quickly at the moment, when P/L would be in +$ (no matter how low number). I tried this in demo on markets.com and it proved itself to be wrong, because of some "fees" and so on.

Thanks for the post, I am going to look into this more.
12-31-2016 08:49 AM
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booshala Offline
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Post: #39
RE: A Primer to Derivatives Trading
(12-30-2016 09:19 PM)Chengiz88 Wrote:  @Booshala - nothing special about this. He has found a niche and style of trading that suits him and it works. You can talk about TA, charts, indicators till the cows come home, but if your execution is poor none of that ever matters. I know guys who only trades a single market every days 1-3 trades max, v large size and for a few ticks. It works for him. He randomly picks a # he likes buys and is in and out in 30-45 seconds sometimes.

[quote='jj90' pid='1475237' dateline='1483154587']
@booshala: Just to add my 2 cents there too, your employee needs to have made not just good coin but great coin for someone to take a look at him. I agree with Chengiz88, the actual strat won't matter all that much if he has the execution down. But to give you an idea he can't have made say 100K on a 50K account for example. He needs to have made like 500K on 50K. Somebody will take notice of that and give him a look. Sounds counter intuitive but that's the nature of the game, moderation doesn't cut it.

Good points both... to me it just seems like tea-leaf reading, especially as most of his decisions come from the astrology part of the equation. Although I think the strangest part of the whole system is how he insists on paying $7 per trade instead of going with cheaper options.
12-31-2016 03:31 PM
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The Right Frame Offline
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Post: #40
RE: A Primer to Derivatives Trading
Jj90 could u explain your trading strategy? Is it quant or qualitative? U seem to be option trading but is arb, vol, etc? Just wondering because when trying to raise money from institutional accounts it is super competitive and requires more than a good track record. Is your trading strategy scalable for say a 20-30 million account? If not institutional money will of course be challenging

And yes agree about the pedigree statement. Have u tried raising money from friends and family? That will at least increase aum and earn management fees.
(This post was last modified: 01-02-2017 04:18 AM by The Right Frame.)
01-02-2017 04:13 AM
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jj90 Offline
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Post: #41
RE: A Primer to Derivatives Trading
@The Right Frame: It's qualitative. I looked into coding it up a while back but honestly it would be reinventing the wheel.

No it's not pure options trading. I trade global macro, most of my risk is flat price risk via different futures/ETFs/etc. I do express views in vol via options or VIX futures but it's not often.

Mine is scalable because I'm usually in the most liquid instruments, I pegged it at up to 50M before execution becomes a serious issue.

I did try to raise AUM from F&F. The money wasn't worth the hassle. I agree it's a start and I encourage anyone looking to make it to take that responsibility on. My time is worth more to me now, and I wouldn't jump through the hoops now unless I got a really decent setup/deal.
01-02-2017 03:56 PM
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TheFinalEpic Offline
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Post: #42
RE: A Primer to Derivatives Trading
Two trades yesterday:

Directional play on CAT, January 20 expiry 96/97 bear call

XOM iron butterfly purchase 90/91 and 90/89 for Jan20 as well. We'll see how they play out.

"Money over bitches, nigga stick to the script." - Jay-Z
They gonna love me for my ambition.
01-05-2017 11:34 AM
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Jack Of All Trades Offline
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Post: #43
RE: A Primer to Derivatives Trading
Anyone read OPTIONS, FUTURES, AND OTHER DERIVATIVES by Hull?

It's dry book but it's good in it shows you things are calculated, I personally never did the whole thing; it's a math textbook I couldn't deal with the AdCalc personally.
01-06-2017 02:10 PM
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Post: #44
RE: A Primer to Derivatives Trading
(01-06-2017 02:10 PM)Jack Of All Trades Wrote:  Anyone read OPTIONS, FUTURES, AND OTHER DERIVATIVES by Hull?

It's dry book but it's good in it shows you things are calculated, I personally never did the whole thing; it's a math textbook I couldn't deal with the AdCalc personally.

I've tried reading it but it's way too heavy on theory for trading imo. Unless you're a quant.
(This post was last modified: 01-06-2017 10:59 PM by Razor Beast.)
01-06-2017 10:58 PM
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Chengiz88 Offline
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Post: #45
RE: A Primer to Derivatives Trading
(01-06-2017 02:10 PM)Jack Of All Trades Wrote:  Anyone read OPTIONS, FUTURES, AND OTHER DERIVATIVES by Hull?

It's dry book but it's good in it shows you things are calculated, I personally never did the whole thing; it's a math textbook I couldn't deal with the AdCalc personally.

Every derivatives trading desk has the obligatory copy of hull even if the traders don't understand a word of what is written in there.
01-07-2017 07:11 AM
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tapthatass Offline
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Post: #46
RE: A Primer to Derivatives Trading
Derivatives are pretty easy to trade. I honestly don't find a difference between normal stocks and derivatives but hey, I am a trader. Only day you need to stay alert is on contract-rollover day.

Just made 100 pips on natgas yesterday.

I prefer to trade crude oil in general because it's just....perfect! Right size of volatility and liquidity. Nat gas has large spikes so it's ideal for very short term trading.

Hit me up if you need advice regarding trading.
01-07-2017 09:49 AM
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Chengiz88 Offline
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RE: A Primer to Derivatives Trading
I use to trade CL back in the day 2008-10 was tricky heard now its v tough as the algo's moved into CL and destroyed the human element. Ended up taking a bath on it and had to leave for a while to regroup and attack again
01-08-2017 08:07 AM
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A.S Offline
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Post: #48
RE: A Primer to Derivatives Trading
(01-08-2017 08:07 AM)Chengiz88 Wrote:  I use to trade CL back in the day 2008-10 was tricky heard now its v tough as the algo's moved into CL and destroyed the human element. Ended up taking a bath on it and had to leave for a while to regroup and attack again

I am a complete newb in trading. What is CL?

Thanks.
01-08-2017 11:56 AM
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TheFinalEpic Offline
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RE: A Primer to Derivatives Trading
(01-08-2017 11:56 AM)A.S Wrote:  
(01-08-2017 08:07 AM)Chengiz88 Wrote:  I use to trade CL back in the day 2008-10 was tricky heard now its v tough as the algo's moved into CL and destroyed the human element. Ended up taking a bath on it and had to leave for a while to regroup and attack again

I am a complete newb in trading. What is CL?

Thanks.

Crude Oil.

I've heard mixed advice about selling naked options virus selling a defined risk vertical spread. When I look at margin requirements (at least in my account), it would make more sense to trade multiple spreads instead of selling one naked put for example:

CAT Feb24 90 Put: I'd receive $2.40 credit while putting up $2700 in margin

CAT Feb24 90/89 Bull Put Spread: $0.32 credit with $100 margin, therefore, I could trade 27 contracts to get to the same margin requirement of the single naked option, at a max profit $864 versus $240 for the single option.

Note: this doesn't take into account liquidity/size limits, just an example

Any comments/experiences on this?

"Money over bitches, nigga stick to the script." - Jay-Z
They gonna love me for my ambition.
01-09-2017 03:23 PM
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Chengiz88 Offline
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Post: #50
RE: A Primer to Derivatives Trading
(01-08-2017 11:56 AM)A.S Wrote:  
(01-08-2017 08:07 AM)Chengiz88 Wrote:  I use to trade CL back in the day 2008-10 was tricky heard now its v tough as the algo's moved into CL and destroyed the human element. Ended up taking a bath on it and had to leave for a while to regroup and attack again

I am a complete newb in trading. What is CL?

Thanks.

Crude Oil Futures...also known as $CL_F
01-09-2017 05:19 PM
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