By Randall Liss It is my great pleasure and privilege to have been invited to be a contributor on this fine site. My area of expertise is exchange traded options and I hope that all of you may benefit from my many years of experience.
For most of my career I was a market-maker on the floor of the European Options Exchange (now part of Euronext) in Amsterdam. I made a market in various equity and index options until the trading floor closed and the exchange went entirely screen based.
For the past several years I have been an options educator. My clients vary from private individuals to financial firms. There is so much false, disingenuous and overly complex information out there that my mission is to demystify and simplify. You won’t be seeing (m)any charts or formulas in my lessons. I prefer straight, plain talk about the wonderful flexibility and diverse uses of traded options.
One thing I am not is a financial advisor or predictor of market direction. I have no idea if the market is going up, down or sideways and never have. I believe in using options strategies that have a very favorable risk vs reward ratio and a well defined cap on potential losses. As a general principle I do not believe in strategies that have a limited upside and an unlimited downside.
What I am really here to do is to help you translate your view of the market into such a strategy. I will also be doing generalized options education and discuss the many and varied uses of options. Contrary to an oft stated belief, options can be as speculative or conservative as you please.
One thing that is very important to keep in mind when reading my discussions is that I am assuming a frictionless market. By that I mean that I take no account of commissions, I assume that money may be borrowed or loaned at the same rate, I assume liquidity and ease of entry and exit and I do not take tax consequences into account. Obviously, in the real world this is not so. But, I can’t know your fee structure, tax bracket, access to capital, etc, so there is no way to take this into account. I will say that I only believe in trading products that are deep and liquid with a tight bid/offer spread. Ease of exiting a position is in many ways more important than ease of entry.
I really welcome comments and questions from you, dear readers. One difficulty I have here is determining what level of expertise and familiarity with options my readers have. So all questions are not only more than welcome, I need them to be as effective as possible.
Well, no lesson today. This is simply my introduction to all of you. I will be contributing on a weekly basis and next week I will get right into it with a discussion of how when trading options one must keep three dimensions in mind. It’s not just direction that counts, it’s also time and velocity. Not just the What, but also the When and the Pace.
And, with that… ‘til next time!
Randall Liss is the author of The Liss Report.