Option selling. Too good to continue?

[Sweet Bobby]

If it isn't the TastyTrade shill .

No mention of Vega, nor tail risk. Or do you just systematically sell 10 delta puts @ 60 DTE with no consideration of the greeks or their derivatives? Which one of us is a moron again?

Hello you ignorant puss,
I monitor delta, vega, and theta. Screw gamma and screw you, asshole. One of us makes money in the markets and the other one is you . . .

 

[Sweet Bobby]

Nice rules. What's your management for the losers? In the current market and its bullish bias, I'm using 1x loss (even with probability of a touch).

I will close a position if it hits 2x loss.

 

[ironchef]

This is the key:

Many of us here, including myself, have posted option trades being short premium and making money.

However, we are not 100% option sellers doing it blindly in any market environment or leveraging up an entire portfolio.

Me, a while back, I learned my lesson when I did it blindly.

 

[ironchef]

Serious question from someone who has never traded real money but has been studying for a while.
Every so often, this subject about selling naked puts is discussed. The answer is always some version of " it won't end well" or "you will end up broke or bankrupt".
If everyone who sells naked puts goes bust, does that mean someone who buys otm puts and holds on will eventually make a fortune? Thanks for your insight.

Go read the book by Taleb: The Black Swan. He made a fortune (he claimed) buying tails. But I am quite sure he didn't buy them blindly.

 

[El OchoCinco]

Yeah most of us have taken shits worth more than what Sweet Bobby trades. We have the posts to prove it while he has bullshit.

 

[Tony Optionaro]

I will close a position if it hits 2x loss.

Genius! He just cuts it if the losses get to 2x, surely no one ever thought of that..

 

[TheBigShort]

Serious question from someone who has never traded real money but has been studying for a while.
Every so often, this subject about selling naked puts is discussed. The answer is always some version of " it won't end well" or "you will end up broke or bankrupt".
If everyone who sells naked puts goes bust, does that mean someone who buys otm puts and holds on will eventually make a fortune? Thanks for your insight.

surprisingly with all the answers you got, no one answered your question!

The answer is yes and no. To find the answer you are looking for we should visit a well know casino game - roulette. The house has an edge right? A small edge but an edge. If the dealer places small bets and is well capitalized in the long run he will not go bankrupt, however if the casino decides to bet to big and is not well capitalized the casino will eventually go bankrupt. So even tho roulette has a positive advantage to the house, if you do not manage your money right, you will go broke.

Conversely if you have a negative edge (the player), your optimal bet is to bet once and bet big!

Selling puts has a positive expected value. If you are looking to make 15% a year, it's a reasonable strategy. However, if you bet to big you will eventually go bankrupt (like the OP). On the other hand, if the option buyer has been buying puts for years and then finally hits it big, it is unlikely the big payout will cover all his small loses. But if the option buyer has only bought a few options prior and hit big on his say 3rd option, he will make money (for the time being). The option buyers best bet is to walk away from the table after the big win.

So to answer you question, systematically buying d10 puts will not make you very wealthy. If you are lucky enough to get the timing right it could but you would have to of bet big and walk away after your win.

 

[draft730]

Most people responding to you have never sold a put and don't have the balls to. Selling 10 delta puts at 60 days to expiration, then managing the trade at 40% maximum profit or closing the trade with 3 weeks remaining in the trade will work extraordinarily well. Try to use no more than 35% of your buying power. So if you have a $100k account, use no more than $35k for this strategy. Size is what kills when you are a put seller. Maintain your size and you will outperform the morons responding to you who simply don't have a clue.

Thanks. This is the kind of answer I was looking for, with specific numbers as to how much margin is more "optimal" to use. Extraordinary returns will not be achievable if I cut back the exposure though. Would you consider selling calls as a (slight) hedge and a return booster?

 

[Wheezooo]

surprisingly with all the answers you got, no one answered your question!

See post #41.

Selling puts has a positive expected value.

It most certainly does not. Properly priced it is always a zero expected value transaction. You are confusing higher likelihood of winning with expected value. If I roll a die, pick a number, and get paid 6 to 1. I am most likely to lose but the expected value on any individual roll will always remain zero.

 

[Wheezooo]

Most people responding to you have never sold a put and don't have the balls to. Selling 10 delta puts at 60 days to expiration, then managing the trade at 40% maximum profit or closing the trade with 3 weeks remaining in the trade will work extraordinarily well. Try to use no more than 35% of your buying power. So if you have a $100k account, use no more than $35k for this strategy. Size is what kills when you are a put seller. Maintain your size and you will outperform the morons responding to you who simply don't have a clue.

We used to have a sign up when you came into the office. It said, "Never have so few, taken so much, from so many."

It's nice to finally put names to the 'so many.' Thank you Bobby, Draft, and Dr.