Alpha and Beta

Terrapin Trader,

It’s All Greek To Me

http://www.investopedia.com/ask/answers/102714/whats-difference-between-alpha-and-beta.asp

I’m not going to explain as Investopedia is way smarter than me, but it’s about performance.

The Alpha Male

This may be more familiar ground. The reason I mention it, is because it’s also a measurement of ourselves.  I see a lot of alpha male behaviour on the internet. Especially on the trading forums. Maybe we are all ‘Alpha males’ in the trading world. At least 90% of the population are terrified of trading. I’ve met many super smart people who just don’t ‘get it’. Their ego won’t allow them to admit their fear. Fear of failure and…fear of success.

Trading As A Retail Trader

We are supposed to devise a strategy that gives us an ‘edge’ .That is the essence of any business. Options give us an edge from day one. I’ll explain:

Imagine buying stock ABC at £10. The dividend is a juicy 5%. To get that, means being  locked in to ownership of that stock. Thus when the stock goes ex-dividend you cannot sell and collect the profit as that is now priced in – ABC now trades at £9.50. To use the equivalent amount of money with options and lock in 5% in a month, we know we have a great many choices. Most of the 30 trade strategies to date would easily give you that. We do not need months or years to make a profit.

But Stocks Have done Great

The stockmarket has more than doubled in the 8 years since 2009 thanks to QE. Retail money is always late to the party. A great many sold out. At the bottom. Yet investors contemplate shares because they ‘think’ they understand them. Stocks are ‘sort of ‘ comfortable. People are ‘buying what they know’ instead of using  basic knowledge of maths. Therefore, trust your judgement. Acknowledge your fear. Trade and win.

 

Published by Terrapin Trader

First found out about options in 1995.From the arcane magazine Exchange and Mart! First trade- a covered call on VOD in 1999. Made 10%,VOD almost doubled. That's when I realised I was not a good trader,and I was forgiven thanks to the amazing world of exchange traded options

3 Comments

  1. I love the many articlkes written by PhDs on markets- about seeking alpha etc. For me I can never be a part of that world,but it intrigues me and there is always some value in reading and getting insights from the smart guys. I just don’t see buying a share portfolio as a way of optimising money for the individual

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    1. No- it is for free- I share my options knowledge sotraders can stop doing sumb things like forex!

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