Trading Without an Opinion: Is it Possible? Is it Foolish?


I'm bewildered by your reply. I've been reading your
blog for a while, so I think I understand your admonition to consider
one's comfort level when trading. Nevertheless, I find it hard to
believe that you don't have some sort of underlying assumption if not
about market direction, at least about it's relative range when you make
a trade.

I understand adjusting before the underlying gets to a level
that reaches your discomfort point. But short of exiting the position,
when you roll up/down or out, it would seem that you've made an implicit
bet on market direction. That is, you expect the underlying to reverse
before it touches the further out strike.

Maybe you don't look at it
that way. I could imagine that you only look at the risk/reward of the
new position without forecasting market direction. But it would seem to
me that the risk/reward of the new position depends on the probabilities
of the underlying's movement, which still implies some sort of bias.

Even if you don't consider the probabilities, the premium you collect
reflects the market's view of the probabilities, so you're implicitly
betting against the market since you're selling premium.

This isn't a criticism of your method. But as I think more and more
about your suggestions I find it hard to to conceptualize how you get
comfortable with your positions without having some view on market

Any insights would be most appreciated.



Hey Burt,

I see your point of view.  Sometimes people use different words to express the same view.  When I tell you that I have no market bias or no expectation for how the underlying stock is going to behave, I mean that from an intellectual point of view.  I have no belief (on which I am willing to wager) that the markets are moving higher or lower or are range-bound.

However, every time I open a position, my account balance is affected by the market action.  By trading iron condors, the bet I choose to make is that the stock price will remain within a range specified by the strike prices of my iron condor. 

I do not believe you are correct when stating that I am betting 'against' the market.  The market has established the odds (when holding the iron condor through expiration).  But those odds apply to both sides.  Why do you think I am against the market?  Why aren't I on the same side as the market?  Oddsmakers go out of their way to make the bet equally attractive from both sides so they can earn the vig (vigorish).

A significant portion of my overall strategy includes: If that price range does not hold, then I wager I can manipulate the trade to hold losses to an acceptable level.  That translates to this: I can make more when things go well than I lose when things go badly.  Every trader makes the same wager: they can earn more when profitable than they lose when unprofitable.

To me that is not a bias.  I am depending on my risk management abilities to keep me out of trouble – despite the fact that they are not 100% reliable.  I choose iron condors because I have no reason to choose bullish or bearish plays.

I adopt a strategy that owns positions that are near neutral in delta and gamma, but which have positive theta and negative vega.  If I am comfortable trading those positions, why should you be bewildered?  I'm always surprised when people believe they can profitably wager on market direction.

My explanation

I believe it's a good idea to open a limited-risk position whenever I 'like my chances.'  If I lack an edge in predictive ability, I must depend on my ability to avoid disasters. 

I must also compromise between safety (how long to wait before exiting a winning trade) and taking advantage when the markets trade within my range.  I decide how long to hold and how much profit to seek.  If I lose when markets are volatile, I must compensate when they are calm.  Risk management precludes holding through expiration (for me) and thus, there is a time to cover.

You are correct.  The premium collected determines the maximum reward.  Risk is more difficult to determine.  I will not allow the trade to move to the worst case scenario, but I also don't know – in advance – at what price I'll exit.  Thus, 'risk' is only estimated.  Options traders estimate future volatility all the time.  I estimate future risk.

If I like the estimated risk/reward for no well-defined reason, does that suggest the trade is 'wrong' or a bad idea?  Not to me. 

Those who use technical analysis, and never trade without a very strong opinion, would disagree.  In fact I had one novice who was incredulous that I traded without using technical analysis.  When I asked how much money he was making by having an opinion, I did not get a satisfactory answer.

I was trained in the 'always be neutral' school, and although I don't strictly adhere to it's teachings, I learned that 'neutral is good' and 'opinions are bad.' 

Question – without trying to get into a philosophical discussion: Is this any different from religion?  As children we are taught to believe that certain things are true.  Most hold those beliefs while others turn away from religion.

There's no 'proof' that the beliefs are true, but people live their lives by those 'truths.' To be a true believer, means that everyone who doesn't think as you do is wrong.  Is that reasonable?  It is how we live.

So I ask: Why is my approach so bewildering?  I don't believe I can accomplish anything with technical analysis.  I don't have a good method for predicting the markets, and believe the vast majority cannot consistently do so.  I choose to trade as a non-believer, i.e., neither the bulls nor bears have an edge. 

I see nothing wrong with remaining faithful to the neutrality idea which tells me that having a market bias is wrong.  I have enough proof that it's wrong for me.

1) I've frequently traded with directional bias in my career, with a dismal track record.

One example: I clearly remember Aug 1982 when I was certain the market had not bottomed.  I was short, stayed short, watched my money disappear (I had made a mint in 1981) and stubbornly refused to change my opinion. When I ran out of money, I conceded defeat.

I've had similar results when opinionated.  I have an opinion right now.  I do not understand why the DJIA is not 5,000 instead of 10,000.  But it is 10,000 and I cannot afford to wager that there will be a huge decline.

If I am a skillful risk manager and don't hold onto positions that are too risky, I do well.  When I get stubborn, I either get lucky and survive, or get clobbered.

I don't want to depend on luck to avoid getting clobbered.  Thus, I learned to control my emotions and opinions when trading.

Is that a good idea for anyone else?  I believe it is, but I'm not adamant.  Each trader goes his own way  I must trade this way.  I proved to myself that I cannot afford the luxury of placing market bets based on my opinion. 

My job is to help people understand options and how to use them.  To that end, I share my philosophy and strongly held views.  But I do not tell people that my way is the truth.  I encourage independent thought.

2) You said: "But it would seem to me that the risk/reward of the new position depends on the probabilities of the underlying's movement, which still implies some sort of bias"

Yes.  It depends on the probability of where the underlying is going.  But I don't know where it is goingThis is where we disagree.

I do not distort that probability with
my opinion.  You believe that if you have a
market opinion, then there is an increased probability that your opinion
will come true.  I know from past experience that my opinion is
not likley to come true. That's why I always ask about a trader's proven
track record when he/she want to bet on market direction.

I suppose I do trade with a bias (if you want to call it that) of sorts.  The volatility skew allows me to sell puts that are farther OTM than calls.  This suits me because I believe a collapse has a higher probability than a melt-up.  It's not a big deal and does not play a huge role in my choice of options to trade.


I no longer roll a position unless I want the new position in my portfolio.  The new trade must offer a sufficient reward for accepting risk of being 'wrong.' Wrong in this context does not mean that my expectation does not come to pass.  I have no expectation other than I believe I can make money with the trade.  'Wrong' means that the trade loses money.

I consider trading as a study in probabilities.  I estimate the probability of success (difficult to measure because I don't know exactly how long I will hold the trade) – estimate a reward for that success – and decide if I am willing to accept the risk associated with the trade.  That risk is also difficult to estimate, but if I set a max loss per trade, then I have a very reasonable estimate.

Most traders have strong opinions.  That's great when they have a track record to support that opinion.  I have a track record that screams: don't bet on me.


Lessons of a Lifetime: My 33 Years as an Option Trader (Kindle) and e-book versions available.


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7 Responses to Trading Without an Opinion: Is it Possible? Is it Foolish?

  1. Mike 06/07/2010 at 7:25 AM #

    Mark, that was a very detailed reply, thanks for sharing your thoughts. I have a much simpler question. In a book I read that discusses strike prices, it has $80 as the strike price. Prices above the strike price are “out of the money” and “far out of the money.” Later, it talks about the stock being well above the strike price and being deep in the money. Is a stock that is above the strike price “in the money” or actually “out of the money.” Please clear this up!
    A long time reader, Mike

  2. Mark Wolfinger 06/07/2010 at 7:42 AM #

    Hi Mike,
    ‘In the money’ refers to options. Thus, a stock is neither in the money (ITM) nor out of the money.
    When the stock is above the strike price of a call option, then it is that call option that is in the money.
    If the stock is far above the strike price (a relative term without an exact definition), then the OPTION is deep ITM.

  3. Mike 06/07/2010 at 7:05 PM #

    Thanks, Mark.

  4. Joe 06/08/2010 at 1:02 AM #

    Do you have any guidelines for buying kites to protect iron condors? Kites make alot of sense when IV is much lower but when it’s elevated I find it’s a difficult decision.

  5. Mark Wolfinger 06/08/2010 at 7:39 AM #

    It just depends on how much you are willing to pay for protection.
    I decided to trade smaller size, rather than buy costly insurance. Thus, I have not been opening any new kites spreads since the volatility spike.
    In addition, with higher IV, I am trading iron condors that are farther out of the money. I know that in volatile markets, farther OTM may be just one day’s move OTM, but it feels safer to collect the same premium and be more distant. That’s one other reason I am will to trade without insurance at this time.
    It’s truly a personal decision and I don’t have any suggestions other than not to spend so much that you have no profit potential remaining.
    Good question.

  6. Joe 06/08/2010 at 10:34 PM #

    Thanks for the response. I like your approach on getting the same premium but going further out, that feels comfortable to me. Also agree on allowing for potential profit by not going overkill on kites, thus I have been opening a variety of different kites on select ICs.

  7. Mark Wolfinger 06/08/2010 at 11:01 PM #

    Yes, it does feel comfortable.
    When IV is much lower and premiums are smaller, it may be feasible to buy kites. In fact, I sure wish I owned some kites right now, but will not pay today’s prices to get them.
    Cheers to you