Anyone selling premium only

Quote from sle:

Academically-speaking, the question is "do you need to predict the first moment when taking a view of the terminal distribution?". The answer is clearly "yes", as the first moment will be the most important for your returns. However, if you are expressing it via instruments that are leveraged on the second and third moments, you don't have to predict it as well as you would if you just traded delta-one instruments. So I kinda hear what PM wants to say...
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"As well".

Well he's not in exotics, index or SN skew. I think you're both posing different POV.
 
My POV if from the perspective of "probability" of a profit.
That being, there is a greater "probability" of a profit selling otm puts vs buying the same stock long at a higher price.

While the long investor has a greater "potential" for a greater % and dollar return, it is all merely.... "potential".
Betting on "potential" is way more risky than "probability" based bets.
 
Quote from Put_Master:
My POV if from the perspective of "probability" of a profit.
That being, there is a greater "probability" of a profit selling otm puts vs buying the same stock long at a higher price.
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It's important to understand whose lunch you are eating. Could you explain to yourself why these puts are overpriced?

There are very few free lunches, there are only cheap lunches - but even with a cheap lunch, that potato you are biting in might actually be a rock
 
Quote from sle:

It's important to understand whose lunch you are eating. Could you explain to yourself why these puts are overpriced?

There are very few free lunches, there are only cheap lunches - but even with a cheap lunch, that potato you are biting in might actually be a rock
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Becuz POP is edge and there is support on the chart.

In reality, the biggest earner I know of in vanilla options shorts naked puts as his primary strategy. Made something like $15MM in 2012.
 
Quote from Put_Master:

My POV if from the perspective of "probability" of a profit.
That being, there is a greater "probability" of a profit selling otm puts vs buying the same stock long at a higher price.

While the long investor has a greater "potential" for a greater % and dollar return, it is all merely.... "potential".
Betting on "potential" is way more risky than "probability" based bets.
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You don't know what you don't know.
 
Quote from sle:

It's important to understand whose lunch you are eating. Could you explain to yourself why these puts are overpriced?

There are very few free lunches, there are only cheap lunches - but even with a cheap lunch, that potato you are biting in might actually be a rock
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One only knows in "hindsight", if the puts you sold were fairly priced or over priced.
That being, how did the premiums trade an hour, a day or a week later.
I lock in the credit when i think the stock has dropped to a price range at tech support that is likely to hold.
Of course that assumes the credit offered meets or exceeds my minimally acceptable dollar and % return goal.

One should only enter a trade, if the credit offered "exceeds" my minimally acceptable dollar and % return for the risk incurred.
Obviously the higher the better.
But there is often a fine line, between accepting a credit that exceeds ones minimally acceptable dollar and % return.... and totally missing the trade all together.

Thus, it's all about the "blend" of probability of profit, and "exceeding" a minimally acceptable % return on that trade.
That is the type of R/R I focus on.
Focussing solely on R/R without the "context" of probability.... is meaningless to me.
And again, assuming the credit exceeds ones minimally acceptable ROI,... you will only know in hindsight, if the credit offered was fairly or over priced.
 
Quote from Put_Master:

One only knows in "hindsight", if the puts you sold were fairly priced or over priced.
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The SPX 1475P are 300bp over the 1515P. Are they overpriced? Fairly priced?
 
Quote from atticus:

The SPX 1475P are 300bp over the 1515P. Are they overpriced? Fairly priced?
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I don't trade the SPX. So I am ignoring the numbers you listed.
But if the credit drops or remains the same over the coming days/weeks, then they were either reasonably priced or over priced,.... and you should have locked it in when you had the chance.... assuming it met or exceeded your minimally acceptable % return goal.
Depending on each traders % return or ROI goal, what may be reasonably priced for one trader may be unacceptable for another.
But you will only know in hindsight, if you should have waited for a higher credit.
But again, i don't view any trade without the context of "probability".
Numbers alone are meaningless.
 
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