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That means the distribution is never really normal. True, these are all approximations based on past behavior.

Then you have about a 62% chance of breaking even or better without adjustment.

Not if the realized volatility is in your direction. Say that the premium you capture is 1/3 of the current 20 day SD.

No, I don't know that.

I no longer try to avoid having it go in the money by picking a strike below the current price. I sell near at the money strikes, that's where the most time value is. Then I adjust.

Hi ffs1001, These are good questions, the sort of questions I expected when I started the thread. 1) Stock Selection - I'm not concerned with volatility per se, only the percentage of premium available to me. I want to collect at least 1%, or 40 cents on a $40 stock. I know I'm not going to...

That's far beyond anything I can achieve. Have you shared your method?

So what is everyone else doing to make 25%-30% while waiting for the crash? There are so many things that could happen - a nuclear war would probably reduce my return too. Sig is certainly right that if the underlying suddenly goes bankrupt, that would cause a loss. Drmark27 asked "Why do you...

It's also been pointed out previously that the graphic represents a purely mechanical method, measuring results at expiration - living and breathing traders can improve on those results. But I don't insist that 25% or 30% is the norm. Maybe they'll be a few bad years when it only does a little...

I wasn't doing this in 2008. But you're right, it would have caused a drawdown. I've never claimed a panacea or holy grail, I just claim it's safer than trading stocks alone. In the market, that's about all you can ask for.

So you consider sarcasm and mockery civil? Instead of uninformed knee-jerk reactions and irrelevant criticisms, why doesn't someone give some actual reasons why this strategy is fatally flawed? It doesn't really require any special level of expertise. I think it's just an outside the box...

I believe in civility, but I admit I do get annoyed when people repeatedly cite Karen the Supertrader or somesuch as proof that we're doomed. That's not what we're doing, and I think we've made that clear. If I do get blown out of the water, it will take longer than if I just traded the stock.

We've already pointed out that our method is mathematically more conservative (less loss potential) than the equivalent stock position sans options. So is this what you say to someone who buys and sells stock? If so, why the heck are you in a trader's forum? I think you need to reread some of...

A situation like that would never occur to me, Bob. You must have seen about everything there is to see by now.

I didn't fare nearly so well as Mr. Morse's client either - AMD traded down at the open and I took a profit of $178.

I was short 15 AMD puts at 27.5 Friday afternoon. AMD closed at 27.85. I marked the puts Expired in my spreadsheet. I was surprised Saturday morning to receive notification that 14 of the contracts had been assigned. I checked the after hours trading and it was flat line. Why would anyone sell...

Right, I responded as if we were talking of equity options, even though the thread was about index options, which are a whole different animal. Serious traders should look at the advantages of equity options, which I have tried to outline elsewhere.

Yes, I only trade equity options. But not sure why you say it's inherently leveraged. If the stock is put to me, I have the cash to buy it. But it's rare that I allow that to happen.

Agreed. It's only dangerous if you're leveraged. If you are covered, then you can keep trading time value for intrinsic value for as long as you need to minimize a catastrophic downturn. The truth is option selling is far less risky than stock ownership, if you are able to actively manage the...

I prefer selling my covered equity puts on down days - I suppose I'm more a falling knife type of guy. But ultimately I don't think the entry point really matters. There is very little correlation between what the market does and what I think is most likely. So I take a position, relax, and...