thinkMoney - Spring 2015 27

June 2015

In this issue:

  • Trading Is (Not) Gambling
  • Going Long with a Saftey Net
  • Show Me the Money
  • Reading the Alt Crowd

What Are the Odds?

IT HAS TO BE UP THERE as one of the most frequently asked questions for which we don't bother to give much thought to the actual answer. Suppose you bump into your ex years from now at a coffee shop in Poughkeepsie. You'll ask yourself, "What are the odds?" You could get struck by lightning, or see penguins in the desert. Again, "What are the odds?"

But when looking at a possible trade, "What are the odds?" is no longer a rhetorical question. In trading, odds are everything. And if you don't take them seriously, they could leave you with nothing. Ask a professional card player or a really good fantasy football player “What are the odds?" and chances are, they can tell you.

That's because for all the bad rap about gambling and other games of chance, there are those who consistently succeed because of a few basic principles—the same ones you'll find some successful traders share as well. To say trading isn't gambling may be true. But they share some commonalities for success addressed in "Trading is (Not) Gambling" on page 16 that might surprise you.

Now here's something we'll try on for size—a new way to trade dull markets. Frustrated option sellers who can't make enough to buy a can of tuna when the market's dull, might catch a marlin by switching things around. In "Show Me the Money" on page 24, we'll introduce you to the concept of "vol dispersion," used by pro traders.

And if you're going to venture out into the land of buying premium (read: buying calls and puts), you better wear your raincoat or you're going to get wet. While buying options presents some of the worst odds in trading, there's no escaping their allure. So if you must buy, then try to buy safely. In "Going Long with a Safety Net," page 20, we'll show you strategies to consider.

You might say that this issue's theme is about looking for opportunities where others can't see. With that in mind, if it's one thing we've learned through the years, the money isn't always in the trend, it's in the response to the trend. Penguins may not live in the desert, but even the desert cities have zoos.

Happy Trading,
Kevin Lund
Editor-in-Chief, thinkMoney