My option trades for the past 6 months, feel free to ridicule, or offer guidance

Not trying to be confrontational either, and English is not my first language but...the thread is about options then we started talking about what is an edge. My case and it is self explenatory if you read my posts is that when it comes to opinions, selling options has an edge. If I confused you please read when I talk about selling SPY puts.

You stated that it does not really matter if you buy or sell options and that the edge is "within yourself". The choice of words was yours not mine.
 
You are correct, I have no idea what you mean by edge "within yourself" however I doubt that is going to be as good as the edge of increasing probabilities to make money and managing risk. Please go ahead and tell me more about the edge "within yourself". I am curious too.
 
Quote from guy990opl:

Not trying to be confrontational and English is not my first language but...the thread is about options then we started talking about what is an edge. My case and it is self explenatory if you read my posts is that when it comes to opinions, selling options has an edge. If I confused you please read when I talk about selling SPY puts.

You stated that it does not really matter if you buy or sell options and that the within yourself". The choice of words was yours not mine.
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edge is "

I was just suprised that you would dismiss a comment "edge is within yourself" whilst acknowledging that you had no idea what the comment meant! Options and edge was what I was discussing as well!

Regards

Johno
 
Quote from xflat2186:

What natural edge is there in selling? Unless the option is mispriced then the premium you recieved in return for the risk is fair value and thus no edge.
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I thnk you're right again!! Price-wise, nobody would gain any edge in trading provided the price is at a fair value (but sometimes not/ skewed), basically. The (momentary) edge I mentioned for sellers should be a potential very risky one occassionally if not managed properly just in case.
 
According to Trester (in Chaper 18 of The Compleat Option Player) of The Institute of Options Research, the Advantages of Naked Options Writing are summarised (with 3 pages for detail explanation) as follows:

"
1. The potential rewards are outstanding.
2. The odds of wining are strongly in the writer's favor: A. He does not require that the underlying stock price moves to make a profit; and B. He is continuously making a profit as the option shrinks in value with passing time.
3. Success does not depend on predicting stock price behavior.
4. The theoretical and academic arguments supporting naked options writing are excellent."
 
It makes sense, however most option sellers are not very good at managing risk, so everything goes well untill that one single time when they give back everything they made.

Last year I had a positive year and a lucky year since I was selling naked puts. One needs to have a mix of discretionary and systematic approach to sell options. If I sell an option because " I think" or " I feel" that the index is going to move up or down soon or later I will be in troubles.

Ideally in addition to risk management one needs a systematic approach to identify a trend and then sell option WITH the trend not against it, like I did. For instance if the trend is going down you sell naked calls. Or place a spread. In this way ( selling options with the trend ) you will make less money, but you will make it more often and you'll be able to stay in the game for a long time to come.

And better than just selling naked you want to sell using time spreads to limit your risk even more.
 
Quote from guy990opl:


Ideally in addition to risk management one needs a systematic approach to identify a trend and then sell option WITH the trend not against it. For instance if the trend is going down you sell naked calls. In this way you will make less money, but you will make it more often and you'll be able to stay in the game for a long time to come.
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My Dear Friend: If you can identify a trend with great certainty, why not Buy options instead of sell them!
 
Because if you buy options not only you need to identify a trend, but you need to be right also on the extent of the price move and the timing. If you are wrong in just one thing out of three you will lose money. There is also another little thing called volatility. That is when the undelying is moving in the direction you predicted, and the option you bought is STILL losing money.

When you sell options you are NOT going to try to predict where the market will go to in the alloted time frame,( expiration month ), but where the market likely won’t go to. There is a HUGE difference in those two approaches. Ideally I would like "to surrender" and not fight the market/trend. It is much better if someone else picks the tops or the bottoms. Sure I'd love for a stock priced at $20 go back to $10 buy it and ride it back. Well let someone else pick it at $10. Once the bottom is made, if I can ride it back from $14 to $16 I am happy.

By the way I can not identify a trend with "great certainty" I never said that, you did. But if there is a trend whatever is going, and that trend is moving, I have a basic system that is going to catch it, no matter what. That is why I sell options. Naked or hedged. I believe that this is an edge.

Quote from OddTrader:

My Dear Friend: If you can identify a trend with great certainty, why not Buy options instead of sell them! [/QUOTE
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Quote from guy990opl:

Because if you buy options not only you need to identify a trend, but you need to be right also on the extent of the price move and the timing. If you are wrong in just one thing out of three you will lose money. There is also another little thing called volatility. That is when the undelying is moving in the direction you predicted, and the option you bought is STILL losing money.

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OK, that's true!
 
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