advantage to selling options?

destriero said:
She spent $300K of investor's capital rolling DITM calendars to perpetuate her fraud. Imagine rolling calendar each month and throwing away 300K in cash simply to generate fees from the fraud.
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The only thing more obnoxious is that she wasn't thrown in jail for that shit.
 
MK020 said:
I read on many blogs/websites that there's a "house advantage" to writing options, because most options expire worthless, etc.

I don't see how there could be an inherent advantage to selling options, since you can only sell what someone is willing to buy, and unless the seller had more information than the buyer, it should be even. It's also pointless to me when someone says 80% of options expire worthless, since it's not win-loss percents that matter, but rather profits (1 big win can offset 20 small loses).

Am I missing something? Is there another reason why there's an advantage to selling?
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professionals buy options
 
Option theory with a lot of assumptions. Over enough repetitions, you would be indifferent. Sellers will be profitable more frequently, but have a limited return - buyers will be profitable less frequently, but occasionally make buckets of money. Change the parameters - have a good volatility forecast - adjust skew to balance your inventory - a whole series of issues can skew the decision making. The theoretical value of an option is an indifference price for the given inputs. MMs make a ton off of very small profits - reversing the b/a and a ton leverage. Fully hedged MM can get enormous leverage.
If you're going to do it once you have a bias - going to do it thousands of time and you become indifferent
 
ET180 said:
Why do people buy options? For insurance or leverage. When you sell options, you are paid for providing that service. You are being paid to assume risk. If it was a losing proposition, on average, then people would not do it. Same with car insurance. Most people don't buy car insurance expecting to use it. But if insurers on average only broke-even, they simply would not do it. So averaged over a large number of occurrences, there should be an advantage to providing that service, otherwise it would not be offered.
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Exactly. Options isn't the zero-sum game people make it out to be. People that buy them for insurance or hedging *expect* them to expire worthless, but want to have them around just in case. Their portfolio *benefits* from the option expiring worthless, because that means their primary strategy has worked out. If you write options, you provide that insurance.
 
ET180 said:
Why do people buy options? For insurance or leverage. When you sell options, you are paid for providing that service. You are being paid to assume risk. If it was a losing proposition, on average, then people would not do it. Same with car insurance. Most people don't buy car insurance expecting to use it. But if insurers on average only broke-even, they simply would not do it. So averaged over a large number of occurrences, there should be an advantage to providing that service, otherwise it would not be offered.
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Makes sense. I notice that a lot of the volume for SPX are for strikes ATM. Are these for leverage? I can picture far OTM strikes acting as insurance, but buying ATM strikes seems like a high price to pay for insurance.
 
destriero said:
Vol trades inverse to price, generally, and certainly in tech. Price the same strike put against the CC. Say the shares are trading 115 and I sell the 120C at 14. The put is trading at 19. Weeks pass and ROKU is trading 70. The 120P is trading at 50 1/4. You're down 31 and change on your combination (covered call). Where is the juice? Sure, you're not shorting the 120C which is now 50 points OTM, but vomma is small in OTM options. What's 10 more on the vol-line on a 20D call in ROKU? $0.30?

There are no repair strategies. Yes, you're going to replicate the position at a higher vol-line, but you're out $30/share.
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@destriero - as usual, it's going to take me a while to parse what you wrote (usually resulting in a significant amount of learning, so it's not like I mind.) And thanks to a convo with @Wheezooo, I largely get how mark-to-market works - seeing this trade as a loss and the later trades I made as gains. What I don't get, other than as an accounting practice, is why I'd want to see it that way: without the position I was in as a result of those earlier trades, I couldn't have made those gains - right?

I also recall a position you had on where the price moved against you, and you - um, "fixed" it.

https://www.elitetrader.com/et/threads/dests-everything-journal.332136/page-28#post-4931400

Not arguing with your assertion, but I don't understand the difference between repairing a trade gone bad and the above.
 
BlueWaterSailor said:
@destriero - as usual, it's going to take me a while to parse what you wrote (usually resulting in a significant amount of learning, so it's not like I mind.) And thanks to a convo with @Wheezooo, I largely get how mark-to-market works - seeing this trade as a loss and the later trades I made as gains. What I don't get, other than as an accounting practice, is why I'd want to see it that way: without the position I was in as a result of those earlier trades, I couldn't have made those gains - right?

I also recall a position you had on where the price moved against you, and you - um, "fixed" it.

https://www.elitetrader.com/et/threads/dests-everything-journal.332136/page-28#post-4931400

Not arguing with your assertion, but I don't understand the difference between repairing a trade gone bad and the above.
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I never adjusted/repaired the initial fly. I stated I was down 2% on net liq due to the fly. I held it.
 
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