How legit is options selling?

Is option selling legit

  • Total voters
    19
  • Poll closed .
taowave said:
I'm confused..You sell naked puts for pennies in great quantity and feel getting assigned or having the stock crater is the best possible outcome??The reason being you can "buy more stock'or sell calls against your long position???

How exactly do you stay in business under these scenarios??

And wouldn't trading spreads from the short side somewhat mitigate tail risk??
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Perhaps you misunderstood me--I only want to get assigned on the calls. The puts; I would rather have those expire, but if I get assigned I can ditch the shares commission-free or sell calls on the new position.

I sell way more covered calls than naked puts--dividend income is nice to have, and I make sure I'm well-diversified and never have too great a % in a single equity in case something crashes (except the whole market, but that's another story).

Spreads carry tail risk of losing the entire investment (as everyone here should know by now), whereas it's rare to see shares of a stock go to zero, though it can obviously happen--yes, I got burned on GE, but I kinda doubt it's going bankrupt anytime soon (this is where fundamental analysis comes in). Maxar, on the other hand, is a different story (which is hurting me at the moment, but I'm not panicking). But that's what diversification and risk management is for.

traider said:
Commissions charged by broker and exchange should be low in comparison with the spread you are paying. For example, if the quote is 0.03 to 0.04, you just lost a huge amount of edge when you trade. You are assuming GE will not go bankrupt but there is no way that you can know it.
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So, in regards to this, I have an account on ToS that I use for the tools and price comparisons. There are situations where I have to deal with nickel-increment options on RH instead of penny-increment options on ToS, but I generally try to avoid those and mostly stay away from any bad spreads under $0.10 (If I'm giving up a cent or two on a 0.15 option, it sucks, but I think the lack of commission offsets it? If I was a spreadsheet guru I could probably figure out the exact % on the spreads I need to be profitable). If I'm dealing with true penny options (WFT is a good example), I make sure I can get the right spreads on RH. In general, I try to get good spreads no matter what (patience and good research is a must for me). Unless what you're referring to is that on a full-service platform like IB, I might be able to sell for the ask and buy for the bid (which I haven't considered, that would obviously change the game for me)?

As you said, and I addressed above, obviously there's always a risk of the underlying going to zero. I just try to avoid companies that seem like they're about to bellyflop.

Maybe I should mention that I never deal with index (or any macro) options and only touch individual companies. As stated earlier, asymmetrical information is a bitch, but I feel that being well-diversified is (maybe?) a good defense.
 
If your fundamental analysis is good and you have halfway human timing,I would strongly advise against selling OTM puts,except in those instances where vol is super jacked .You simply dont get paid enough when you are right,and that was always my biggest trading sin....


William Eckhardt of Market Wizards wrote,and while he wasnt referring to options,its applicable to selling puts..

"The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance."

P.S. I know you werent advocating selling cheap puts and were responding to another poster:)









traider said:
short covered call is short a naked put.
If your fundamental analysis is good, you will make money anyhow, options just the icing on the cake.
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Hi,Hes definitely not directional but is the best I have seen at hedging ridiculously sized risk.He facilitates flow,one most others wont...TBH,I really do not know how he offsets his risk,but so far so good...


traider said:
Does the ex colleague you are talking about trade options based on direction or other factors?
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ironchef said:
To understand relative value, to know gamma is cheap require profound knowledge of the option market and option pricing. Where can I learn how to acquire those knowledge? I scanned Coursera and MOOC but couldn't find anything useful on option pricing and strategy.
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I am pretty sure I have mentioned this a few times. The best way to learn how to trade options in my opinion is to read as much as you can from what @Kevin Schmit, @sle and @atticus/destriero @riskarb have written. They all have a good sense of humor as well which makes reading their posts more enjoyable than a text book. Most people will not read after a few pages because understanding their lingo has a steep learning curve. You also cant learn about pricing without understanding at least 1st or second year college algebra/calculus/stats. So maybe that can be an area for you to work on
 
JSOP said:
OMG!!! You sold strangles on CL??!! You are so brave. Strangles is so dangerous that you lose one way or another literally. Strangles only work when the underlying is extremely stable with no volatility but then you won't get the premiums you will just end up donating money to the broker. There only very rarely that selling strangles work due to a drastic reduction of volatility. I've only sold 2 strangles in my life, both during earnings. One of them was on NVDA, at that time everybody was expecting major earnings beat with stellar guidance so IV was totally hyped up and I sold into the IV but it turns out it was just an average beat and the guidance was just ok and the stock didn't move much luckily for me. Come to think of it, it was quite scary. The stock could've gone just like the expectation and I would've been totally screwed. I never sold strangles ever again.
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Yep, tell me about it, still waiting for my medal of honor though :) And it all pales with comparison when I sold calls on NG haha. After a big run up in NG I thought well those 7 calls have juicy premiums, lets sell some. I did time it perfectly because it went down after that, but this was pure luck. I then went (yes, afterwards) to check behavior of NG for 20 years back and oh my.. Learn the term widow-maker at the same time :)

As for CL strangles, I made money for a year with them because I sold 0.05 delta or 0.03 delta and just waited a month for both of them to expire worthless. I did took some heat once when CL felt for 10 points, but it quickly reversed back up so it worked out at the end. What killed me was november and going to weeklies for some "quick money" haha. And if would work out fine if I was not so stubborn to take a loss and rolling out. Then my losses compounded.. I should have stick to the plan to buy back sold option once it triples and the loss would be very small. But yeah, it was all stupid now that I look back at 2018 and I think I can count myself lucky to still have 97 % of my money :) Could have ended like optionsellers.com
 
Worth remembering that these guys are still around even if performance isn't as sexy as you might hope: http://www.ansbacherusa.com/

I'm sure I remember visiting that site a while back and there being more than 1 fund, possibly maybe 3 of them and 1 of them was some kind of aggressive variant I think. No doubt that/those blew up but he still has the original one going...
 
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