It's on their sales documents on their site. By law they have to list the max peak to trough drawdown. It's 67% in 2008.
Correction: It's 63%. My mistake.
Correction: It's 63%. My mistake.
Is there any empirical study available about the profitability of option sellers vs option buyers?
- Thread starter Lloyd W. Coutee
- Start date
It wasn't that long ago I was asking the same question. Why not just sell premium? I'll probably be right only 50% of the time, and in options time is everything, so at least I will have time on my side. And 2 out of three aint bad.
Until I realized they just don't give premium away. You actually have to buy it and hope you can sell it (or hopefully let expire worthless) at a profit just like if you owned a hardware store.
so...you are not long or short options, you are just trading premium
and premium is just like beans or wheat or ES or CL or anything else
Until I realized they just don't give premium away. You actually have to buy it and hope you can sell it (or hopefully let expire worthless) at a profit just like if you owned a hardware store.
so...you are not long or short options, you are just trading premium
and premium is just like beans or wheat or ES or CL or anything else
Got it. I missed max draw down. Tough for sure, and most investors would be freaking out. But they knew what they were doing and survived. The strategy is called Aggressive after all.
Not everybody is getting an option for making a shitload, sometimes it is just plain insurance. That being said:
https://www.quora.com/Is-there-any-...fitability-of-option-sellers-vs-option-buyers
https://www.quora.com/Is-there-any-...fitability-of-option-sellers-vs-option-buyers
None of the 6 "answers" have any value. Only one respondent presents any data, and his data are % that expire worthless, a common mistake. What matters is expectation.
To be fair, the question is a bit one dimensional - and a bit nonsensical - if that's a word.
Options are far from one dimensional, nor do they occur in a vacuum. The concept of explicitly buying (or selling) them and systemically holding to expiry is not practical nor engaged in by nearly anyone that understands them. I think a lot of options traders start out that way, until we have some limit down nights.
They were designed as a tool to protect (or enhance) an investment in the underlying. Probably about 30 seconds later, outright speculation began. Most of the folks I know that deal in them in any meaningful way (as speculators) are using spreads and are both buying and selling - as I do. Of course there are institutions that are protecting significant underlying positions as well.
Hi KTM,
Let's use options in S&P eminis as an example. In order to get any decent premium the spreads have to be at least 50 points apart, and if a large sudden move happens, losing 50 points several times will wipe out spread traded as easily as naked trader who will face a large loss once ever 5-7 years. Also, added commissions and crossing the spread on entry/exit will kill big chunk of whatever premium collected, ending up with slightly above 1 point of premium.
How do you deal with it?
Thanks,
redduke
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Yes, we have a winner! When it comes to selling options, you should maximize payoff (i.e. expectation), which is probability multiplied by the reward to risk ration payoff = p*(reward/risk).
Just maximizing probability will lead to sell the furthest OTM contract that has a bid. Realize the payoff curve for equities often has its maxima with the ITM contracts.