Covered call is more risky than it appears?

[cohenmichaela]

Ahh, the old martingale strategy. Sizing into losing positions is always a highly successful financial concept.

 

[Buy1Sell2]

Quote from cohenmichaela:

Ahh, the old martingale strategy. Sizing into losing positions is always a highly successful financial concept.

Martingale is doubling each time. I do not double--I add. And yes--it is very successful.

 

[novel20]

Buy1Sell2, you have roughly 50 posts so far today.

Are you a full time trader?

 

[Cache Landing]

I don't want to get sucked into the debate going on here, but I do want to warn newbie traders that the answer to this debate lies in the pricing of the options that are sold for a premium. IOW, you are getting a premium that is based on the probability of that strike being ITM at expiry.

Scaling into or averaging down your positions does help you to avoid losses in the short term. Eventually though, there will be that one wild swing that will take away all the previous profits even after you have added to it a few times. This event could happen tomorrow or twenty years from now. In any case, the plain and simple truth is that unless your strategy has a limit built into it or you are skilled at directional forecasting, you will eventually break even on the trades, and lose the amount that you have paid in commissions/slippage.

 

[cohenmichaela]

I personally have not experienced the success you have had with this strategy and consequently have differing opinions.

Regardless, good luck to you.

 

[gkishot]

Quote from Buy1Sell2:

Martingale is doubling each time. I do not double--I add. And yes--it is very successful.

Buy1Sell2, since you increase your position you are not doing the 'covered call writing', right?

 

[segv]

Seriously, do you think being a net seller of options is the way to go? Based on what you said, if there is a stock called B1S2, I will have an inherit edge just by selling its options?

Quote from Buy1Sell2:
absolutely --especially out of the money and if you want to throw prediction in there, then sell near the tops and bottoms--although I prefer the tops.--But overextension is what you want to avoid. Overextension is the main killer of a trading career--hand in hand with capitalization. They are really nearly one and the same.

That is quite simply wrong, Buy1Sell2. If the option is trading at fair value, there is no inherent edge in selling versus buying the option. Otherwise, an arbitrage opportunity exists.

-segv

 

[novel20]

segv,

I even made up a stock B1S2 on purpose.

However, as he is making big bucks with his method, he must be doing something right.

 

[segv]

Quote from novel20:

segv,

I even made up a stock B1S2 on purpose.

However, as he is making big bucks with his method, he must be doing something right.

Yes clearly, he must be. Just imagine the legions of quants who will read this thread, then suddenly stand up at their desk shouting "Eureka! Shorting OTM premium with a Martingale component!".

-segv

 

[mechtrader41]

selling timevalue is definitely a good idea, you win even when not too wrong with your prediction, I´m not much in options, but the most advance should be in taking bottoms by selling puts, cause the premium should be higher at bottoms than at tops with selling calls, or? In the long run, cause the upbias for decades, should be selling puts at bottoms less risky too, I guess.

...martingale is called every increase of size in or after losses, the doubling up thing is only the classic casino example.

in the tradingworld is:

- Martingale rule = increasing your risk when losing!

- Anti-martingale rule = increase your risk when winning & decrease your risk when losing

There are many variations possible in the amount of increasing or decreasing size.