The one common theme tying traders of all stripes together is that of betting. Regardless of the strategy or time frame selected we’re all placing bets of a sort. The outcome we’re banking on either happens or it doesn’t. Simple as that. Some erroneously believe by venturing into more complex strategies they will somehow bypass betting. Sadly, ’tis not so. The betting nature of trading is inescapable.
A simple trader may purchase a stock they reason is poised to rise in value. They are placing a bet the stock will rise. It either will or it won’t.
A slightly more sophisticated trader may sell an out-of-the-money call vertical spread on a stock they reason is poised to meander sideways or grind lower. They are placing a bet the stock won’t rise much in value. It either will or it won’t.
An advanced trader may gamma scalp long straddles in an attempt to capture the difference between the implied volatility priced into the options and subsequent volatility realized by the underlying. They are placing a bet the options are underpriced. Either they are or they aren’t.
Since earnings season is upon us, straddles and other types of bi-directional, volatility strategies are sure to capture the attention of many traders. Trading straddles into earnings has no more an assured outcome than buying stocks. If you’re participating in a perpetual search for assured outcomes as you hop from one strategy to another, allow me to save you some time. They don’t exist.
Your edge lies largely in your ability to identify market conditions favorable to your approach and exploit them, avoid unfavorable conditions, and manage risk.
For related posts, readers can check out:
The Loss Spigot
Land Mines and Losing
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Excellent point! The thing is that it usually takes to become a *very* advanced trader to realize this.
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