option profitability question

[Angelo_60]

My question is expressed better with a hypothetical example.

Let’s say that there is a strategy to trade a spread and the probability to win $0.3 is 70% and the probability to lose $0.7 is 30%.

Actually, it’s a bit worse than that.

Just to put some hypothetical numbers, it’s more like one has 0.65 probab to win 0.3 and 0.35 probab to lose 0.7

You don’t expect a market maker working for you free of charge, do you?

I do not see any advantage taking trades like that.

Nevertheless, there are some ways to approach the marker as a marker taker (opposed to a market maker).

Just two examples:

- You may have a different idea about the probability distribution of a future move (Read interview of John Bender in stock mkt wiz and of Jamie Mai in Hedge fund mkt wiz if you'd like a deeper understanding of what I mean).

- There are time of high stress or liquidity constraint, for example when everyone run for the same exit, and these dislocations – more often than not – create opportunity for the retail trader (if one is not running for the exit too…).

Some people claim that this can be profitable in the long term by closing trades early. Others talk about the IV that might affect the results that I do not understand why in the long term.

IV is normally higher than HV, but there not a free lunch here.
It's just fair this way (rather the question is: how much ii has to be higher?....)
Shorting options, you’re simply paid because if you are short gamma/vega, you have cost to hedge and you have some risk that are very difficult/impossible to hedge anyway.

So, there’s not a way to “selling option for income”. It’s more like “selling option and be paid for the risk of being short gamma/vega”.