Never shorted options before
- Thread starter mikeenday
- Start date
Not if you sell at periods of maximum volatility. Also, don't underestimate the power of Theta decay. [/QUOTE]
Especially at periods of high volatility.
Or maybe just statistics? And it isn't even necessary to predict a high or low. Close is good enough.
If you know when vol is at its max and that asset is not going down any futher, why trade an OTM put and not just buy the asset? [/QUOTE]
First, no one knows when vol is at its max. So it is important to have a strategy of acquisition that occurs in multiple transactions, rather than just one. Second, buying an asset is a directional trade. Non-directional trades are the key to consistent earnings, which can be achieved through options.
Yeah, right. I keep hearing that. Usually from traders who don't set aside the capital to buy the underlying if assigned. They strictly trade the options and have no interest in the underlying. Limiting leverage or not using it at all improves the option selling strategies significantly.
Threads like this always seem to get away from the fact that a successful trading strategy is comprised of many parts. If someone sells options, then the risk management, position sizing, amount of capital required to achieve enough diversification, etc. also has to be developed to work hand in hand together. So yes, JUST selling options can be risky, can make you lose all your money, etc. But with a complete system, it can produce consistent earnings in any market.
no matter how sound the system is, if it depends on *selling* something you don't own, it will surely blow out one way or another.
to read the direction of where the price will move is the basis of trading any instrument. And the holy-grail of money management is to *buy* whatever you want and risk it all in the worst case.
to read the direction of where the price will move is the basis of trading any instrument. And the holy-grail of money management is to *buy* whatever you want and risk it all in the worst case.
If I sell someone the right to sell me something, that is a purchase. Therefore, saying that someone will blow out based on this concept is misleading and reflects the lack of development of a "complete" methodolgy as I posted earlier.
In addition, if you feel reading direction is the basis of trading any instrument (and perhaps the only basis?), your vision is limited to black and white in a color world.
I can't comment on the your last sentence as I don't understand your point.
My gripe with "the power of theta" is that it comes with the "power of gamma" and "power of vega". Do you just sell naked risk premium or you actually try to hedge yourself somehow? Good statistics skills are not really going to protect you if you get caught in a liquidation festival like the one this summmer.
this statement shows you have a way to go in understanding option basics. you are afraid to sell puts yet you want to sell covered calls. they both have the same risk.
I dont understand if I short 20 117 dec puts on SPY how am I selling something I do not own?
I have the cash to buy 2000 shares of SPY at 117.