Newbie thoughts + some Monte Carlo

[birn]

Hi folks, newbie here!

I'm familiar with the (most) basic options concepts from a (rather rusty) economics background, but haven't exactly traded anything before. More specifically, from what I gather, options offer potential for:

• generating yield, with defined risk (handy in a low yield environment)
• cost-effective hedging, smoothing returns
• profiting from falling markets
• profiting from directional markets while limiting counterparty risk

The latter seems particularly compelling since the odds of a financial crisis in the medium-term seem significant. Creating 'synthetic' positions in trending assets using a modest asset allocation, keeping the remainder isolated from counterparty risk (eg as physical precious metals), offers a way to avoid two of the major impoverishment risks the current economic depression poses (counterparty failure and monetary debasement.)

The Steady Options returns also look extremely good (pity it's closed ) and for due diligence/coding practice, I worked up Monte Carlo situations based on the published monthly returns (see jpg attached), which basically replicate* the CAGR/Sharpe ratios published on the site, but give an idea of the error bounds around them. I can post the (ugly Python) code used to do this somewhere if anyone's interested.

*The figures on the charts are medians + 90% confidence intervals based on 10,000 sets of monthly returns drawn (without replacement) from the series published here.