Is There A Mathematical Formula for Option Trading?

Dear Friend!

Thank you for asking a useful question that has the potential not only to enlighten you but a large section of share day-trading community.

The answer is an emphatic, ‘There Is No Mathematical Formula That Can Be Successfully Employed On A Sustainable Basis”. It is akin to asking ‘Is there a mathematical formula to beat the roulette machine in a casino?” If there were one, the casinos will go bankrupt.

I read that a lot of research was undertaken in the US universities for developing algorithms to make successful trades. Searching for such a solution is like the hunt for the elixir for immortality.

Friend, do not think I am standing on one shore and lecturing those on the other side. I had been a day-trader - speculator myself, many years ago, with a goal of making Rs.2500 a day out of stock trading. I presumed, stupidly, that being a charted accountant, I had the right credentials to hit gold. Alas, besides many small daily losses, one fateful day, my entire savings, running into several lakhs of rupees, were wiped out in less than a second, when the market crashed about 400 points at-once, in early 2000s. That fateful day I vowed never to dabble in stocks in my life. For a long time I totally avoided stocks, till one day my eyes fell on the book ‘The Intelligent Investor’ by Benjamin Graham, selling on the pavement. I refused touch the book, leave alone browsing it. Some unknown force pushed me into buying it, which I reluctantly did. That book changed my life. Since then I am safe and cheerful value investor, happily following in the footsteps of Benjamin Graham and Warren Buffett.

In conclusion, I humbly urge you to leave the path of futures, options and day-trading. There are no mathematical formulas or computer algorithms for success nor are there shortcuts to creating wealth. ‘Value Investing’ is the only safe and sure path to wealth creation in the long term.

I once again thank you very much for raising a very important question.

With Best Regards.

Anand

Please Note: This is almost a reproduction of the question I had answered on the website ‘Quora’, which I thought could be useful to the visitors to this blog site also.