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.

Does Benjamin Graham's Teaching Apply to Buying Entire Businesses as they Do to Stocks?

Dear Frind!

Such a wonderful question you have asked. I was looking for a way to up-vote your question but there seems to be none.

Golden knowledge like what Benjamin Graham propounded will defy compartmentalisation to a particular situation and will certainly attain a global hue. Yes it indeed applies for purchasing businesses also and indeed I apply the rules in evaluating acquisition deals I craft.

Conversely, Warren Buffett compares purchasing even a single share in a company to that of purchasing the whole business - applying the same caution, prudence and analysis - reinforcing your concern and my answer.

Buying a share and buying an entire business are one and the same and the same knowledge, care and patience shall exercised in both the situations - there is no room for even a shred of doubt or confusion about this.

You have asked me a question that has not occurred to me, nor has anyone asked me so far, but it is indeed a great question and I highly appreciate that you have raised it.

Thank you,

Anand