Pictured: My Robinhood Account. When do you think i discovered options LOL ?
Why am I purposefully making negative EV bets?
I have always tried to trade with an edge while options trading. The normal life cycle goes like this: I think of a strategy -> backtest it -> gets horrible result -> think of a new strategy and repeat. However, sometimes my strategies show positive historical returns. In these scenarios I have to test if the strategy has any bias, is it too overfitted, will it fall apart when taking things like transaction cost, slippage etc into account. When a strategy passes all checks I code a bot to trade on it. It’s a simple cycle of try -> fail -> repeat and I love it. I love it because I am learning. I love it because even when I lose money I know I just need to keep believing in the strategy, I am expected to make money.
Why then, would a seemingly rational man with positive EV strategies at his disposal, be involved in naked option betting on Robinhood. There is no answer that puts me in a positive light so I must admit, I perhaps lied about being a risk-neutral individual. If certain risk management criterias are met, I am perhaps a risk seeking individual. This is to say, if the monetary value doesn’t harm me financially in a major way I would rather take a bet with an EV of x than be given x in my hand. Options are generally priced perfectly, with appropriate weights assigned to the different future outcomes of the underlying. As such, an option bet isn’t too different to a coin toss, barring specific divergent scenarios and arbitrage. As I have previously mentioned, I love coin tosses.
I would continue to spend my times learning about the technicalities of option pricing and backtesting strategies that might give me any statistical edge but I would have this small Robinhood account on the side to do coin tosses. I would record all my trades here. Let the dice roll !
| Underlying | Premiums | Notes |
| GOOG Straddle Strike = 172.5 Stock = 174 | Entry Premium = -539 Exit Premium = +622 Net Result = +83 | Made 15.4% over 2 trading days as GOOG rallied and my Calls printed. I bought GOOG as a pure vol play ahead of WWDC but it eventually became a pure delta play. Verdict : Got Lucky but smart play as my losses were capped due to low IV and low vega with multiple inflection points ahead of it. |
