What if it goes to one of your strikes and start ranging in that area? You'll be paying a lot of commission, spread etc, enough to eat up the small gain you got from selling the premium. If you short the ATM straddle instead, you get higher premium and can thus take more ranging before you start losing money.
Am I overlooking the risk?
- Thread starter trader0303
- Start date
I want to add here...as one who nearly lost his entire net worth selling puts in 2000...that one should never short puts that can generate a margin call or put you in serious jeopardy in a worst-case-scenario.
The strategy can have some value in specific cases that the trader has clearly defined, if appropriate for his goals and account. But always proceed with extreme caution and don't expose yourself to overall portfolio risk just to pick up a few pennies of premium.
To quote an experienced options trader who tried to give me advice years ago (which I stupidly ignored): "Shit Happens".
The strategy can have some value in specific cases that the trader has clearly defined, if appropriate for his goals and account. But always proceed with extreme caution and don't expose yourself to overall portfolio risk just to pick up a few pennies of premium.
To quote an experienced options trader who tried to give me advice years ago (which I stupidly ignored): "Shit Happens".
We did pretty well during those years. We planned ahead (a very good point you mentioned) of course. We would be put stock at a lower price, making for a good dividend return in itself. Then, when we have bigger stock positions, we simply sold calls against those stock positions, again, making money on the call premium all the while collecting dividends (or closing out at fair value of coures).
Don