Are writing options profitable?

[TraderTactics]

Quote from Free Thinker:

http://www.elitetrader.com/vb/showthread.php?s=&postid=2682156#post2682156

Thanks for the link, I will read this forum..

 

[MTE]

Quote from billyjoerob:

What about iron condors? They're your selling options and hoping the underlying doesn't move too much, but you still have protection. I don't understand this strategy at all . . . you're not going to get rich 20c at a time. If you're going to speculate, don't do it halfway.

Well, if you can make 20c at a time for the next 10 years you can get very rich indeed.

Besides, where does it say it has to be 20c?

 

[houstak]

Writing options is profitable when they are expensive. Buying them is profitable when they are cheap. If you're looking for a few magic words, here they are: "implied volatility"

This post says it all very nicely:

Quote from TraderZones:

Anytime a simple solution like this is aired, you need to consider two things:

1) why aren't the $multi-billion hedge funds/IBs doing this and arbing the heck out of it? Yet it is available on one-man-wonder websites? (because it does not really work)
2) what happens after slippage, bid-ask spread, commission, fees, taxes and everything else is factored in?

You either have an edge or you do not. It is not a simple thing like "gee, what if I just do this?"

 

[Wayne Gibbous]

Quote from Eliot Hosewater:

Is 40% Per Month Shorting Index Puts a Fair Return?

http://www.cxoadvisory.com/equity-options/is-40-per-month-shorting-index-puts-a-fair-return/

Ah yes - the Niederhoffer Method:

1. Sell index puts.
2. Make nice returns for a few years.
3. Suck in lots of investors.
4. Become a hero to slobbering schlubs like 'Surfer.
5. Blow up, liquidate, start over.
6. Sell index puts.
7. ....
8. ...

 

[Rodney King]

Quote from Wayne Gibbous:

Ah yes - the Niederhoffer Method: ... 4. Become a hero to slobbering schlubs like 'Surfer ...

Haven't you already flamed VN and Surf on several other threads? "Asked and answered, counselor..."... Sheesh, get a life already.

 

[spindr0]

Quote from Eliot Hosewater:

Is 40% Per Month Shorting Index Puts a Fair Return?

If anyone could achieve such profits, why would they waste time running an advisory group?

Or as someone else in the chain aptly put it, why would anyone ever buy a long option if one could achieve 40 per month short ??????????????????????????

 

[spindr0]

Quote from increasenow:

this ONLY works and is ONLY true for those with HUGE cash balances in their account...if you have under $100,000 in your account...forget writing/selling naked options...totally forget it

Account size has nothing to do with the success of writing naked.

 

[livevol_ophir]

Quote from TraderTactics:

I read somewhere that only the Call and Put writers make money, those who trade them are sure to lose more than they gain.

How does that work? It would be nice to know the mechanics of writing calls or puts...

Can anyone here share their views?

Most successful professional options trades on the floor sell more premium than they buy, but are long more options than they are short.

i.e. sell 100 straddles but buy 125 wings on each side...

The majority of options that are open expire worthless... but, one wrong move short options can wipe out 20 right moves. The strategy above attempts to capture both phenomenon... profit from expiring worthless options and protect against the unforseen event...

 

[lindq]

Quote from spindr0:

Account size has nothing to do with the success of writing naked.

Yes it does, assuming that one wants to engage in a regular program of collecting premium.

In that case, a trader needs to assume that at some point they are going to be put a stock (or 2 or 3), which will remove capital available for further put selling requirements.

Thus, one needs a significant account size to safely sell premium at any level that makes the income worthwhile, and the high risk worth any effort.

 

[spindr0]

Quote from lindq:

Yes it does, assuming that one wants to engage in a regular program of collecting premium.

In that case, a trader needs to assume that at some point they are going to be put a stock (or 2 or 3), which will remove capital available for further put selling requirements.

Thus, one needs a significant account size to safely sell premium at any level that makes the income worthwhile, and the high risk worth any effort.

Whatever you can do with 50g you can do 2x as much with 100g and 3x as much with 150g, etc. It's simply arithmetic and the return is the same, percentagewise.