$1MM liquid -- how difficult to achieve 15% annual ROI with option writing?

Well for my 2 cents worth, stocks do one of 5 things and if you are a seller of options , you make $ on 4 of the possible movements. So your only concern is limiting your loss on the one big move that could go against you. That should be easy enough to do by doing spreads on the more volatile stocks you sell the options on.

Also, I did read a book on a system of selling puts that seemed very logical for someone with as much $ / margin as you have. The author sold puts on say 10 stocks on the S&P and then after seeing what % of the S&P each of those stocks represented, he bought enough puts on the S&P to offset potential loss from a big downturn in the stocks he picked. Since the ratio was not 1:1, he made $ on it. I didn't pay alot of attention to the system as I do not have that type of margin, but it seemed like a good system that you could mathematically figure out to give yourself an edge.
 
What to do if the underlying market price moves against you if you have naked call / put short options position?

Please answer these questions, I am keen to learn and open to new ideas

Thanks
 
What you do is you react!!!!!! You either:
1. buy the stock to cover the short call and make $ as it goes up since the delta on the OTM call you sold is less than the stock.
2. buy calls with higher deltas than the short calls and make $ as they go up at a faster rate
3. if tanking buy puts with higher deltas than the short puts and make $ as they go up at a faster rate than your short puts
4. hit the sell button and go long.
4. hit the sell button, go get a rub and a tug and come back tomorrow and start fresh.

1-3 can work best as once the underlying stops its run either up or down, you can sell the long options you bought to cover your shorts at enough profit to to close the spread you now have at a profit . You then pat yourself on the back for a winning trade as opposed to whining about the loss you took when you closed out your initial losing position. Because we know from experience, as soon as you take the loss on the short, the underlying will turn and go the way you thought.
 
I agree with you,

Say if you bought the long option at a higher delta, if the price of underlying moves the opposite way (in favour of short option position). When do you recoup the money in long option? It would have lost a lot in value if underlying moves the opposite way? Do you usually do it like 2 weeks before expiration?

2rd scenario, say you write a naked option position and underlying price moves against it. The option at a closer strike price can become prohibiltely expensive (especially with options on futures contract), do you still buy these long options to cover your short ones?

You sound very knowledgeable in options trading. I appreciate your opinion and open to new ideas

Many thanks
 
Quote from cohenmichaela:

1) Simply absurd. There is no implicit edge in buying or selling options. Any initial position (long or short) is immediately a loss in the retail world due to commissions and the spread. Any edge (or perceived edge) is due to one's reasoning behind initiating the position. Only time can then statistically prove the actual edge.

4) Time is on your side. Volatility and curvature is not.

5) Again, completely absurd. Gamma is inversely linear to theta.

6) Sure, short volatility and, probably in your case, short cheap gamma. An easy way to lose a lot of sleep and feel a lot of pain...
More...

good reply
 
The recommendations I made are for someone sitting at the computer watching their positions. Familiarity with a particular underlying should let you see when it is starting to run or tank and that is when you go long to protect yourself and make some $. If I was short a Dec 80 put on COP and it started to tank, I would probably buy 2 Dec 85 puts and a 75 put. It it moves enough over a couple of days for me to sell the 85 puts at a good profit I would and the 75 put would protect me in case it tanked more.

I should emphasis, this is simply following the price action and has nothing to do with calculating the theta or vega of each purchase. You made a choice to short and this is just scalping along the way to offset potential loses on the short.

For instance I shorted 10 calls on TASR once and it shortly started to run up. I knew it had volatile action going up or down so went long enough stock at a price below the strike price to cover the short calls and bought some calls to make quick $ on the run up. Not very scientific but it was better than buying back the short calls at a loss.
 
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