Anyone selling premium only

[1245]

Quote from Daring:

I only buy cheap premium, naturally that forces me to be right on direction and somewhat (not dramatically) fast on time while having a good target idea, but that's ok that's what price action is for.

If you know what you are doing, your risk is fixed and limited, and the accuracy does not have to be bad, problem is people don't know what they are doing and that's when they have the need to be creative, to somehow make up for the lack of market structure education.

Do you make money buying "cheap" options, which I assume you mean low priced, not cheaply priced compared to market conditions? I know very few option buyiers of OTM optns that make money over time.

You'll buy an option for $0.15. 80% of the time they never go up and expire worthless. 10% of the time, it will go up but not to your target, and on the way down you get lucky and break even or make a little money. In the times you're right and the stock goes your way, you're selling at $0.30 to $0.50 happy you made money, as that options runs up to $1.50 three days later.

Does this sound familiar to anyone?

1245

 

[Daring]

Quote from 1245:

Do you make money buying "cheap" options, which I assume you mean low priced, not cheaply priced compared to market conditions? I know very few option buyiers of OTM optns that make money over time.

You'll buy an option for $0.15. 80% of the time they never go up and expire worthless. 10% of the time, it will go up but not to your target, and on the way down you get lucky and break even or make a little money. In the times you're right and the stock goes your way, you're selling at $0.30 to $0.50 happy you made money, as that options runs up to $1.50 three days later.

Does this sound familiar to anyone?

1245

Most of the OTM options I buy (they aren't insanely cheap, just cheap), I sell ITM ATM or for a higher premium. A very small percentage of them I watch them expire totally worthless, meaning I was wrong, as it should be, as I don't try to trick the game. I'm either right on direction and target or I'm not.

 

[optionbull]

Quote from 1245:

Do you make money buying "cheap" options, which I assume you mean low priced, not cheaply priced compared to market conditions? I know very few option buyiers of OTM optns that make money over time.

You'll buy an option for $0.15. 80% of the time they never go up and expire worthless. 10% of the time, it will go up but not to your target, and on the way down you get lucky and break even or make a little money. In the times you're right and the stock goes your way, you're selling at $0.30 to $0.50 happy you made money, as that options runs up to $1.50 three days later.

Does this sound familiar to anyone?

1245

Sure, but how does it compare to just buying the underlying wether it be stock or futures, the percent being right is bad, but the payoff to risk is very good ? no ?

 

[1245]

Quote from optionbull:

Sure, but how does it compare to just buying the underlying wether it be stock or futures, the percent being right is bad, but the payoff to risk is very good ? no ?

There is nothing wrong with buying an ATM or ITM option rather than the underlying in a situation where the trade is short term and you want to lever up or just limit your risk. My suggestion is to never buy OTM optioons to open in a gamble that the stock might go that way. Over time, you'll be a loser. The worst thing that can happen is that you make money on the first few. You will gamble more over time and lose even more.

1245

 

[Daring]

Quote from spencer:

his Honda while figuring out how

and WTF is wrong with a Honda ?

great vehicles

 

[optionbull]

Quote from 1245:

There is nothing wrong with buying an ATM or ITM option rather than the underlying in a situation where the trade is short term and you want to lever up or just limit your risk. My suggestion is to never buy OTM optioons to open in a gamble that the stock might go that way. Over time, you'll be a loser. The worst thing that can happen is that you make money on the first few. You will gamble more over time and lose even more.

1245

Why do you say this exactly ?

Could you provide example thnx

 

[1245]

I think it is important to understand that option trading is different than trading equities. You can buy a call, the stock can go up, and you can lose money. To make money over time, you need to put the odds in your favor. Sometimes that's buying vol and sometimes it selling vol. I find most of the time, if you wait for only selling opportunities, you increase your odds of making money.

So, when I like a stock, I prefer to sell put spreads. Or, buy one atm call and sell two OTM calls. There are many ways to meet your strategy. I stick to net selling most of the time.

 

[optionbull]

Quote from 1245:

I think it is important to understand that option trading is different than trading equities. You can buy a call, the stock can go up, and you can lose money. To make money over time, you need to put the odds in your favor. Sometimes that's buying vol and sometimes it selling vol. I find most of the time, if you wait for only selling opportunities, you increase your odds of making money.

So, when I like a stock, I prefer to sell put spreads. Or, buy one atm call and sell two OTM calls. There are many ways to meet your strategy. I stick to net selling most of the time.

Understood

 

[metameta]

Out of a universe of maybe 50 quality companies you have a potential opportunity every three months for just a few of them to have a poor quarter creating a sell-off, then you can sell otm puts.

The thing is the people buying the puts could be making more money than put sellers. They buy the stock when it sells off, buy an otm put from you, collect dividends over time to pay for that insurance and reap the rebound in share price. Almost everytime i made money shorting puts, I would have made more buying the stock, buying the put i sold, and holding the stock until it recovers. You both could win, option seller and option buyer. Its not necessarily a zero sum, it's only zero sum on the contract not necessarily overall.

Its just the put seller isn't reliant on the stock recovering. Stock can languish and put seller still wins, stock goes up, put seller wins. Put seller takes less risk, earns less reward. Again this makes the assumption you are trading on companies with less risk of going to zero for all the tail-risk naysayers (WMT, PG, etc..). The reward is commensurate with the risk here. You could earn 10% per annum, they could double that, but need the stock to move up.

 

[optionbull]

Quote from metameta:

Out of a universe of maybe 50 quality companies you have a potential opportunity every three months for just a few of them to have a poor quarter creating a sell-off, then you can sell otm puts.

The thing is the people buying the puts could be making more money than put sellers. They buy the stock when it sells off, buy an otm put from you, collect dividends over time to pay for that insurance and reap the rebound in share price. Almost everytime i made money shorting puts, I would have made more buying the stock, buying the put i sold, and holding the stock until it recovers. You both could win, option seller and option buyer. Its not necessarily a zero sum, it's only zero sum on the contract not necessarily overall.

Its just the put seller isn't reliant on the stock recovering. Stock can languish and put seller still wins, stock goes up, put seller wins. Put seller takes less risk, earns less reward. Again this makes the assumption you are trading on companies with less risk of going to zero for all the tail-risk naysayers (WMT, PG, etc..). The reward is commensurate with the risk here. You could earn 10% per annum, they could double that, but need the stock to move up.

Thanks excellent