Buying options for a living

Yes, you can make a living by outright buying options. But you need a method/model to predict direction as plainly buying options is a directional trade.
 
chyldom said:
So could you please tell me how you do that?
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If you expect AMZN to go to $2200 by mid October, you buy the November contract, in case the move comes in late October after the October expiry. But know that this can work against you if you get too far out (i.e. if you bought a Dec expiry and the move came in late October).
 
dude - there is no free lunch regardless what you trade. at the end of the day it still comes down to how you read the market and decide if it's going up or down or sideways.... and you need to read better than the guy on the opposite side.

so... any questions regarding stocks or options or futures, buys or sells... completely pointless.
 
lindq said:
Because options are derivative of an underlying instrument, you should first be successful in trading the underlying. What happens with the underlying will impact the movement and timing of the option, and often in ways you may not expect. You'll also need to face additional costs of options spreads and commissions, which can be considerable.
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i'd rather disagree. I never been successful at underlying but highly successful when trading options. it is the essence of options that if understood mitigates you from the risks of trading stocks directly through its many techniques not possible through stocks. Stocks are sitting duck during any sort of economic calamity whereas options you can do much.
 
chyldom said:
Hello, I know there are few traders, who are just buying calls and puts.

I think with selling there is too much risk, you could win 8 times from 10 but that 2 trades will delete your winners. I am sure there are successful traders but this thread is only about buying.

So for buyers, what expiration are you trading, what works for you the best?

How you work with time decay?

What other thinks are you looking for?

What about volatility?

Are you trading stocks which you know?

If you can share your experience, your discoveries it would be great.


I am sure that you need to use technical analysis to decide if you will be call or put or some fundamentals.

Thank you, Dominik
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Peace,

<<<I think with selling there is too much risk, you could win 8 times from 10 but that 2 trades will delete your winners. I am sure there are successful traders but this thread is only about buying.>>>

The description for your version of Option Sellers is correct. Eventually they will go bust. They & us don't know when, but eventually. The risks they're taking... it's expected of them to go bust. They need to hedge risk of ruin. You can manage risk by spreading out the bets across a broad spectrum of securities but you still need to hedge risk of ruin.

...You have $10,000. You sell option on TSLA and collect $500.00 If it goes against you, you lose $10,000. You win over 90% of the time. But the one-time loss ruins you.

...You have $10,000. You sell options on 10 securities. Collateral is $1,000 on each, and reward is $50.00. If trade goes against you, you'll lose $1,000 max, maybe $2,000 on two trades, but the hit is small, you're financing your max drawdown via diversifying and you'll still be in the game. Still you eventually go bust.

The reason being is that when you diversify, your goal is to spread it out and make uncorrelated bets. Like two separate blackjack tables. But markets aren't like blackjack tables. They're very correlated, as much as pundits say they aren't and that true diversification is possible(I don't believe that). Look at history and big crashes, such as 2008. Everything goes down, even "safe-havens".

Again, need to hedge risk of ruin(purchase VIX, deep-otm market index puts, and the likes), which will further reduce profitability, but you'll still be in the game when others get burned.

<<<So for buyers, what expiration are you trading, what works for you the best?>>>

You don't want to take a highway that has no exits for long stretch of time, nor a highway that has a million exits where you have too many options and don't know which exit to take. Not too short, not too long. Give yourself optionality. 1 contract with 5 yr expiration is massively different than 5 contracts with 1yr expiration each. You get optionality. Same with 12 month to 6 month. 6 month to 3 month.

<<<How you work with time decay?>>>

The options are generally super cheap, sometimes illiquid. Time decay has not much of an effect. If you're buying options that cost 0.05c, time decay is irrelevant.

<<<What other thinks are you looking for?>>>

Your not looking for anything, you know that things sometimes happen that are unexpected and you are only positioning yourself to benefit from volatility when it happens, whenever that may be.

<<<What about volatility?>>>

Volatility is your best friend. You are fire, waiting for wind. While sellers are trees, hoping they don't get burned. Eventually a forest fire happens (rarely, but it happens); and it destroy everything.

<<<Are you trading stocks which you know?>>>

Extremely short answer is no. Also, it doesn't only need to be equity options.

<<<If you can share your experience, your discoveries it would be great.>>>

Find your edge. If you don't have a mathematical edge, you will lose overtime. Option buyers lose money majority of the time, but overtime they're results revert to the mean of their expectation.

For example, you will lose money majority of the time, say 95% of the time, but 5% of the time, you make 50x return. But keep in mind, the entire time your hedging your risk of ruin. People get ruined because of volatility. You INVITE volatility. So they win 90% of the time and eventually lose. You win 5% of the time and eventually win. If your probability and expected outcome calculations are right.

How can you make sure you have good calculation of probability of winning and you're odds(payoff)? Trial and error. Start small, run some trials with real money, figure it out. Keep track of your trades, you need to find your system.

All these people who use technical analysis (pseudoscience), fundamental analysis etc still don't know what they're doing. Analysts are best at fundamental analysis yet their predictions(over 50% wrong) are just as bad as a normal(non-ivy league) person who you find on the streets. No one knows if a stock price is going to go up or down regardless of fundamentals, technicals, hype, etc. No. one. knows. Find your edge.

In this strategy, you accept that you'll never know. You simply set yourself up for profits when others realize they got it wrong. Example: IV is predicted for facebook to move 5% up/down after earnings, facebook releases earnings, facebook drops 16%. You win, majority loses. You won because you know that you don't know jack shit. You recognized that models can get things wrong sometimes and when markets see something they didn't expect, it overreacts, and you recognize this as an option buyer. You take advantage of these special situations.

Check out Kelly Criterion, Nassim Taleb, Ed Thorp, and


It's more complicated than this, btw. You need to understand sizing of the bets you make. (Kelly Criterion/Half Kelly), and the logic behind it all.

I further want to add that anyone who truly finds their edge, will never share their trade secret with others. This is why I personally believe that all those Charlatan Option Trading Youtubers are bullshit vending machines.

There are professional traders who find their edge will tell you the system, but not the exact details. Why should they and why would they? It will ruin the their system because everyone will find out and implement it and therefore it'll become a self-fulfilling prophecy. Such as technical analysis; if someone found a indicator that no one realizes and kept it a secret... then it's fair to say technical analysis works for that individual. But now that everyone knows the indicators(because they're public), it is a self-fulfilling prophecy. A grand illusion deceiving minds of hundreds of thousands.

Good luck.

Peace,
Amahrix
 
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ask yourself who invented and who promotes option buying - lol option sellers. they prey on the lust, ignorance and hope of those who think they can risk little and gain a lot.

why would someone "sellers" put up their house as collateral to gain a bicycle? each and every month who the heck are these "sellers" risking everything for some lucky "buyer" guy? they are professionals, that's who they are and they thank you for this thread and the delirious people who perpetuate the myth of low risk high returns alive.
 
MarkBrown said:
ask yourself who invented and who promotes option buying - lol option sellers. they prey on the lust, ignorance and hope of those who think they can risk little and gain a lot.

why would someone "sellers" put up their house as collateral to gain a bicycle? each and every month who the heck are these "sellers" risking everything for some lucky "buyer" guy? they are professionals, that's who they are and they thank you for this thread and the delirious people who perpetuate the myth of low risk high returns alive.
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Your post is fallacious.

Just because they created it, doesn’t mean they can’t lose in it.

Time and time again they lose. The irony is they follow the illusion that they’re winning. Which they are 90% of the time. But when they lose, they’re out, and I’m still in, and ahead.

Imagine the first human being who discovered and engaged in war, doesn’t mean he will win in it.

Option sellers win the battles, not the war. (Except the ones that hedge risk of ruin; ironically to hedge risk of ruin, you BUY OPTIONS).

Peace,
Amahrix
 
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