advantage to selling options?

BAT31 said:
Hmm... one advantage-- Theta works in your favor when you sell options, as opposed to against you when you buy an option.

Another advantage, if you plan to hold a stock long term, why not write options for income? It sure beats writing a naked option.

Take the above with a grain of salt, I only wrote option very briefly and learned it's not my forte.
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Sorry man then why comment? Because what you wrote doesn’t make much sense.

“Why not write options for income?” Because you can’t, no such thing.

“It sure beats writing a naked option” not sure what you mean by this.

theta does not work in your favor if you are short premo. You are positive theta, but this is offset by other Greeks. There’s always a trade off. So, we as a collective need to get this notion of “theta working in your favor” idea outta here.
 
TheBigShort said:
Sounds like a game of Russian roulette. 9 empty chambers and 1 that kills you. You must love playing that game :) long run expected value for sure!
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psychologically much easier for our brains to trade positive skew strategies in the long term.
 
Cabin111 said:
That is me for the last 20 years...

I have bought and sold (optioned away) ADM for the last 14+ years. 2006 the price was $41. Today it is at $39.43...Very boring you would think. In my two different Roth IRAs anything I earn is tax free. It has held it's dividend for about a gazillion years!! I do covered calls on this stock (my favorite hold). If it gets called away, I do not have to wait 31 days to buy again. Dividend is 3.73%...Not bad in this fed (free money) environment. Predetermined gain for the most part...Everybody eats!!
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I worked for ADM for 8 years and it is (at that time anyway) a very well run company and an excellent choice for your 14 year strategy. I am curious as to how you navigated the the decline from 46 on Feb 11th to 29 on March 23rd. This appears to be a covered call strategy nightmare scenario. I know over the long term you are fine but did you just bite the bullet and keep selling weekly calls to mitigate the capital decline in your base asset? Did you buy a OTM put to hedge the potential decline in ADM once it started down in force on Feb 25th?

Thanks for reminding me of good ole ADM. I am thinking of doing this strategy on ADM as an experiment myself. I might even do it in a Trading Journal to document how a "Covered Call -- Cash Secured Put" strategy works in real time over different market conditions. However, the high volatility right now is probably not the best time to start.
 
Illini Trader said:
I worked for ADM for 8 years and it is (at that time anyway) a very well run company and an excellent choice for your 14 year strategy. I am curious as to how you navigated the the decline from 46 on Feb 11th to 29 on March 23rd. This appears to be a covered call strategy nightmare scenario. I know over the long term you are fine but did you just bite the bullet and keep selling weekly calls to mitigate the capital decline in your base asset? Did you buy a OTM put to hedge the potential decline in ADM once it started down in force on Feb 25th?

Thanks for reminding me of good ole ADM. I am thinking of doing this strategy on ADM as an experiment myself. I might even do it in a Trading Journal to document how a "Covered Call -- Cash Secured Put" strategy works in real time over different market conditions. However, the high volatility right now is probably not the best time to start.[/QUOTE

Much more basic than you might think. Very little thought process involved really. Buy when you believe it is low to value. If it is low and you know a dividend is coming soon, buy. Once a dividend is declared, many financial advisors push ADM to retirees and widow and orphan type people.

I was a contract worker for Hershey's years ago. They would work on their quarters. They would use duck tape and super glue to keep they plants running!! They had to make their numbers for that quarter (bonuses). Once the quarter ended, they did all the work. You knew there was deferred maintenance that would kill the next quarter...But the company was solid. You may have seen the same thing at ADM.

So my simple answer is to do leaps...Up to a year and a half. If the stock is way too high to buy, I will wait till it drops a bit. Even put my price in 20 cents lower than the bid/ask...Waiting for a dip. It's not going anywhere. My wife and I have ADM in 5 different accounts...Two trust accounts and three Roth IRAs. When one gets called away we wait then buy on the dip. VERY BORING!!
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Sorry...The above thread (inside the box) gives a more complete answer. My wireless keyboard died...
 
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Justrade said:
One of the good threads out there :

There is no edge in SELLING an option with the same delta over BUYING that same option


https://www.elitetrader.com/et/threads/writing-options-for-a-living.53037/page-2
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I said that on many occasions. However, what @Maverick74 said is true only if you blindly sell/buy.

Like any business, you have to know what you are doing to make money. Selling put/call by itself is not an edge, just a tool, you have to know when/what to buy and when/what to sell.

@Cabin111 has been doing this for years and make a good living because he knows what he is doing or he is a very very lucky trader.
 
ironchef said:
I said that on many occasions. However, what @Maverick74 said is true only if you blindly sell/buy.

Like any business, you have to know what you are doing to make money. Selling put/call by itself is not an edge, just a tool, you have to know when/what to buy and when/what to sell.

@Cabin111 has been doing this for years and make a good living because he knows what he is doing or he is a very very lucky trader.
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Ironchef...It seem to me this strategy is the same thing you would see many pension funds do. Yeah, they will shoot for the moon with some of their money...Which is good and right. But other parts of the fund must be slow and steady income that is above bond level. If the stock drops 10-20 percent (non recession era) you look closely at the stock (GE, GM, Ford). You buy back your option and sell the stock. If the fundamentals are there...Ride it out. This is not rocket science...
 
If we are new to options, here is what could happen:

1. We read books that told us selling options to collect premium was a low risk way to generate income. They showed this chart:

upload_2020-7-15_8-49-41.png


They said we could profit because of "risk premium". The realized IV was always less than implied. We sold IV so we netted the risk premium, simple.

2. We started writing, everything was good. Then came March 2020, the market crashed.... We now realized we picked up pennies in front of a steamroller.

3. So we found this chart:

upload_2020-7-15_8-57-7.png


During bear markets IV went sky high and we were short, also, HV > IV on many occasions and we were short.

4. We can profit if we know how but not by blindly follow books.
 
Cabin111 said:
Ironchef...It seem to me this strategy is the same thing you would see many pension funds do. Yeah, they will shoot for the moon with some of their money...Which is good and right. But other parts of the fund must be slow and steady income that is above bond level. If the stock drops 10-20 percent (non recession era) you look closely at the stock (GE, GM, Ford). You buy back your option and sell the stock. If the fundamentals are there...Ride it out. This is not rocket science...
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You are too modest. It is not rocket science but not flipping burger either.

There are as many winning ways as there are winning traders, some write some buy some trade names some indexes, some straight some combinations. The person who introduced me to options wrote only the same single name for decades. I wrote same name, didn't work but found something else worked.
 
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