advantage to selling options?

[ironchef]

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.

From one newbie, a mom and pop amateur retail: We all started by doing covered calls and cash secured puts because all the books and gurus said it was free money, an income stream to juice our stock holdings. One website said someone made $2.8M selling options in two years starting with $80K in debt, all this in his spare time and you can do that too just pay $39.99 a month and you too can be a millionaire!

Why, we are selling insurance and insurance companies print money. Besides the risk is very low as 80% of options expired worthless, the other 20% won't hurt us, because we can "repair" by "rolling" if the trade goes against us.

So this newbie started in 2013, systemically sold covered calls, many hundreds of times (could be over a thousand, I stopped counting) for a six month period, rolled when the trade went bad. Let's just say I no longer systemically sell options.

It is not a free lunch. @newwurldmn was more right than @Tradex, the return if positive, is quite modest if you do it long enough. Remember, you are trading against professionals, MM and folks like @destriero, @TheBigShort, @newwurldmn. You think they are willing to give up their Porsche 911, lake front house to fund you?

Of course you can make money buying, selling or in combinations but the devil is in the details and I don't think you understand the details.

 

[newwurldmn]

You literally know nothing about volatility trading. You just splashed the pot holding 2-7 off suit before the flop.

Reminds me a hand I was playing at Foxwoods:

I was big blind and the first guy after the blinds raised before he even looked at his cards. I had a 2-7 off suit and folded because of the raise.

Flop was 7-7-2.

 

[qlai]

Remember, you are trading against professionals, MM and folks like @destriero, @TheBigShort, @newwurldmn.

I don’t think about it this way. My sloppy trading may give them their edge, but I had my own, completely unrelated, reasons to enter the trade. We are not direct competitors. But when I hear people discussing different options pricing models, I think to myself - ah another theoretician trying to complete on pros’ turf.

 

[ironchef]

I don’t think about it this way. My sloppy trading may give them their edge, but I had my own, completely unrelated, reasons to enter the trade. We are not direct competitors. But when I hear people discussing different options pricing models, I think to myself - ah another theoretician trying to complete on pros’ turf.

You are right we all have our reason to trade: To make money.

But let's look at things from 20,000 ft level, everyone, whether hedge, speculate or invest, want to be net positive, so someone has to put money on the table for others to take regardless of how many levels it reaches (e.g. someone bought a call from me, I hedged my short call with a long future, the one who sold me the future had to neutralize his risk by doing something....). My bet is it won't be the pros or @destriero or @TheBigShort or @newwurldmn but rather some retails like me or @MK020 who are funding @destriero et al.

Best to you.

 

[taowave]

Is this a joke that I am not getting??

Buy a stock at 100,collect 5% of notional on the call and watch the stock go to 70???

Lose 25%,look for another stock with no upside and rinse and repeat??

What happens after the 4th time of rinsing??

The stock drops to 70 and you collect the premium ($$).

Then you find another stock with no upside potential and rinse and repeat.

Simple as that.

 

[BlueWaterSailor]

What happens after the 4th time of rinsing??

You automatically become a lifetime member of r/wallstreetbets and get a (fake) gold "YOLO autist" pin.

 

[Tradex]

Buy a stock at 100,collect 5% of notional on the call and watch the stock go to 70???

Sorry, I got distracted when I wrote the post.
Selling covered calls makes sense only if the trader believes that the stock has some limited upside potential, or at least won't drop too much (if at all).

Finding such stocks is of course the key to success as far as selling covered calls is concerned.

Hope this clarifies.

 

[Tradex]

So this newbie started in 2013, systemically sold covered calls, many hundreds of times (could be over a thousand, I stopped counting) for a six month period, rolled when the trade went bad. Let's just say I no longer systemically sell options.

Sorry to hear that but who said selling covered calls was easy?

The trader still has to do his homework and find the best stocks to write calls on.

Generating a steady income is not easy no matter what trading strategy we use, and selling covered calls is no exception.

 

[destriero]

Sorry to hear that but who said selling covered calls was easy?

The trader still has to do his homework and find the best stocks to write calls on.

Generating a steady income is not easy no matter what trading strategy we use, and selling covered calls is no exception.

lol dude, please stay!

 

[destriero]

Is this a joke that I am not getting??

Buy a stock at 100,collect 5% of notional on the call and watch the stock go to 70???

Lose 25%,look for another stock with no upside and rinse and repeat??

What happens after the 4th time of rinsing??

You lose... he stops bathing.

It's what simultaneously sucks and is wonderful about these threads. A well-intentioned noob opens a thread and some piker fx loser comes along to school people. I love it so.