Argentinean guy needs some advice regarded to Option Trading

Economics Economics Questions
1

The value of Good theory is that it leads to a good practice. As an austrian I do the classic with my investment, I buy some gold coin when I expect an expansion of the monetary base.

Then I guessed that investing in physical gold was the first step and I wanned to go further so I’m now analysing the possibility of make money in the financials derivatives markets, trading some Puts and Call of mini gold or something like that. So, here start my problem.

First. I understand that Austrian theory can ask WHAT you should be investing in. (i.e. monetary expansion = buy gold).
Is that correct?

Second, Austrian theory cannot tell me WHEN you should buy or sell. This question is about TIMING (Some people say that austrians are know for having a bad timing lol). In the case that austrian theory proves that there is no way to respond the question of WHEN, I should stop thinking about financial derivatives because all Fs & Os markes are a speculation of TIME. Here, people make bets trying to ask WHEN.
So, as an austrian Should I never go for derivatives?

Finally, I’ve read this art by Gene Callahan: “Models: What are They Good For?” … I didn’t understand much.
I found that a lot of austrians reprove the use of mathematical-statistical models to make use of some historical prices and give as a result a way for pricing an option. The majority of austrians turns greedy to Black-Scholes models (Here in my city Rosario no one use other that this one!!). I think I understand the basics about the problem of using history and math to predict the future but it does still leave me with my problem to response: There is a valid way to make option pricing?

Should I learn and use Black-Scholes or it is useless? How could it be that a lot of businesses and banks use those mathematical methods if there are completely wrong and useless?

Thanks for help!!

2

Actually, AE is value-free. It says that if you do X, Y will happen (all else being equal and not changing).

With an economy as complex as ours, you can’t just say that a drop in the minimum wage will result in more teenage employment, if at the same time some laws come in that change the teenage employment situation in another way. The economy has become very complex, and that’s why market traders spend plenty of time learning models and developing their own models for valuation.

If you want to learn about investing, reading up some material from people who do investing for a living might be a good idea.

3

I would say the furthest AE could go would be to recommend what you view as money, not what you should do with it, or what you should do with your fiat.

As for the Black-Scholes maybe you would find this useful:

4

No one can reliably, and consistently predict future prices and movements of any market,nor where an economy is headed; not you, not I , nor any economist [“Austrian” or otherwise] ,nor any investment advisor [“Austrian” or otherwise].

If you closely study the core of Austrian economic theory [i.e. “praxeology”] , and its implications, as laid out in works such as “Human Action”, it should become obvious as to why that is so.

Given that fact of life, [i.e. no one can reliably, consistently predict future market events] it makes sense to divide your savings into two categories:

[1] money you can afford to lose.

[2] money you cannot afford to lose.

Then, should you then have money you can actually afford to lose, that money can then be used to take positions in futures, options, or in anything else you might fancy, and using any trading system you might fancy [e.g. “Black-Scholes”].

That way , you never risk losing money that is precious to you.

If you do not have money you cannot afford to lose, obviously you probably do not need to making risky bets with options trades etc. , unless you are one of the rare breed of instinctual gamblers who “get their jollies” by taking large risks in financial markets etc.

Money You Cannot Afford To Lose?

To learn more about how to hold money you cannot afford to lose, click on my profile name “onebornfree” at th top of this post , and it will take you to my profile information. Once there, click on the first link : “Financial Safety Rule#1”] .

If after reading that you need more information, please private message me through this website and I will try to answer any questions.

If not, I wish you luck.

Regards, onebornfree.

5

I agree, AE could “help” to make better decision on capital allocation (but doesn’t tell you WHAT you should do, of course)

The link that you give me was extremely useful, Thank You!!

6

I still have the problem: Can it be possible to establish a reliable model to determine the price of options?

Thanks to all

7

Short answer, no. I think pretty much all schools of thought agree on this point.