I would like to chime in on this rather interesting thread. I do have various friends on site, and many know that in my past, I fancied selling premium. When observing data sets and myriads of statistical data, selling premium at the RIGHT TIME can be a very profitable strategy... for a time.
However, I caution those following Howard's trading plan to be very careful. I have blown up many times in my decades long trading career doing this very strategy. It must be noted that I did manage OPM in hedge funds, and the payoff structure was friendly to high probability high risk transactions.
The most important things to consider are as many pointed out the outliers. When volatility explodes, you are truly a sitting duck. You are completely impotent, powerless, and you will panic. One really does need a trading strategy that will take into consideration events like 9/11, 2008-2009 banking crisis, etc. As others have pointed out, when volatility explodes, if you are trying to buy back your credit spread, you will see how the market makers will make the bid-offer so wide that you will be wiped out no matter what. Trust me on this...
Even though I achieved stellar returns during many multi-year periods, my occasional blowups could not mitigate the successes. After all, what if during a 10 year period, I turned your $1000 into a cool million dollars, but on year 11, you mortgaged your house and emptied your IRA (because I was so successful), and then on year 11 the fund blew up?
I respect Howard's keen persistence to this strategy, but until we see another sharp spike in volatility, one cannot prudently employ large sums of money into this plan. A few months of success cannot be a proper data set. In my opinion, you should employ a few DECADES at least with this strategy precisely because it IS a HIGH RISK strategy that can easily blow up the account into oblivion.
If Howard was suggesting a strategy that risked say only 4% of your trading capital, then I feel it could be safe to use a short backtesting window. But selling premium USUALLY ends up risking 100% of your trading capital! I understand Howard says you can roll your positions, but this is essentially The Martingale Strategy in betting casino terms. Unless you plan to live only one more month, you cannot safely execute this strategy.
Now, if someone has a terminal illness and will die in one month, and really doesn't care, then selling deep out of the money puts on the SPX, maybe at the 1000 strike would be a fine and dandy trade. Also, if you hate your wife and kids and wish to live out your life as a traveling Buddhist monk, then this strategy is perfect.
But unless your family will enjoy living under a bridge and eating out of garbage cans, beware of selling cheap premium. I am living proof that over millions and millions of dollars and decades of trading, this strategy likely will end in tears.
Now, I am not going to disrespect Howard here. And I am not stating money cannot be made. But with all due respect to Howard, he clearly stated his trading of selling cheap gamma and premium has been limited in duration. I wished to share that I did in fact utilize this strategy over decades of real money trading.
This is sort of like running across land mines to look for spare change dropped by dying soldiers. You will likely be OK, maybe OK for a LONG distance and time. But eventually... I also had a friend who hated using condoms, and he was OK, for a long time. But a week ago I found out he has HIV...
