Option selling. Too good to continue?

[Wheezooo]

Your problem is you are too smart,and it appears you were never a knucklehead like the rest of us

Oh no, I was a total knucklehead. I just wasn't allowed. I was working for three months when the NCAA tournament rolled around. They had bets going on all over the place, where you paid X for a team and if that team won you collected $64. One of the exchanges even cleared a specialist desk to make these bets. I was in the office doing clerk stuff, and Temple had a good team that year but was about to get upset. Maybe there were two minutes left in the game and they were down by about eight. One of the traders, said he would pay $.10 for 100 Temple, I turned and said sold. Within minutes my boss caught wind of that, and my ass was called into his office where he just berated me for about fifteen straight minutes. 'You fucking moron, risking $6,400 to make $10... and on, and on, and on it went.' I swear to god, I never lived that one down, haunted me for months. There was never a convo about badging me that someone didn't bring that up.
Four months later I saw a guy try to collect $3,200 selling teeny calls, it wasn't even part of a trade he wanted, it was just a dead day in CL, price was in the teens, vol was dead, he was trying to get off a put spread no one wanted, and added in 3,200 $32 calls @ cabinet, a trader, mostly out of boredom, said done... worthless shit 100% above current market... then helis flew over Kuwait, cost him $29,000,000.

I think those two experiences were so deeply burned into my psyche that even the thought of NOT OWNING wings was enough to make me break into sweats.

 

[samuel11]

Self, if you were going to trade again, (and that will never happen)

Would you mind sharing why?

 

[Pkay]

I never heard of a tail.
Is that a naked put / call ?

 

[El OchoCinco]

If you sell a put and VIX goes through the roof, why does that make u blow up? because of margin requirements? As long as you don't close the position, won't you just be negative the amount you got assigned for?

Because the common characteristic of out sellers is over leveraging more and more as the small money rolls in so when the put finally explodes and has to be closed out all the winnings and then some disappear.

The fallacy is you get assigned a stock at a large loss and you just hold until to it goes back up (now married to the position) or start selling calls regularly to make it all back. However many newbies chase bigger premiums and riskier stocks.

The stock that dropped hard and IV popped can keep dropping and the loss has to be captured. Then you are back to $0.

If it wasn't for the fact we have all.seen it time.and time again you would think we were making it up but we are not.

All we are saying is respect the risk this entails and stop running this as a 100% strat and leveraging up because the blow up is coming if NOT managed correctly.

Just saying I can manage it is not enough.

 

[taowave]

Im curious as well..

Im halfway there,which is why I dont want to manage a short vol book and am hopefully making the transition to more of a directional trader. Cant bear to watch the screen all day..

Would you mind sharing why?

 

[taowave]

You are one of the few who made good money and at the same time are intropective enough to question how and why you succeeded.

My only issues were you long and leveraged and not 100 percent aware of how the money was really made..

Looking into my results more seriously, I now realize that I could have made the same profit just buying the ES future in the beginning of the year at 2450. I would have made (3240-2450)×50=39500 almost the same. The leverage in that case in a 49k account would be 2450×50=122500/49000=2.5/1 which is far far less than the leverage I used... That means something...

 

[Pkay]

The answer is: if an option is at its fair value E(pnl)=0, you buy it.

I think the trick might be in assessing what fair value is...

 

[Wheezooo]

Would you mind sharing why?

I was exhausted, and no longer took pleasure in doing it. So I stopped.

 

[draft730]

You are one of the few who made good money and at the same time are intropective enough to question how and why you succeeded.

My only issues were you long and leveraged and not 100 percent aware of how the money was really made..

I think it is more a psychology issue. I loved the feeling that I could make money in any case, unless a serious drop occurred. Also, up until now, I was bullish.For the same reasons, it is really impossible for me to buy a call, knowing that I will pay a premium and the option decays every millisecond. That would make me sick. Deep inside, I am aware that those are fallacies...

 

[Stamamarti]

As one premium seller to another. Cut your risk in half to allow for margin expansion. Also, you'd be better off with fewer contracts closer to the money. Your losses grow exponentially with more contracts. You can still do roll and adjust strategy even when closer to the market.

Do yourself a favor and get a subscription to Optionnet Explorer to test your strategy. After testing 2013, I swore off naked calls. No amount of adjusting saved the positions in a raging bull market

Be very wary of the Drs' recommendations here. Optionnet Explorer is a deadbeat piece of S***t. It was last updated in Feb 2012, still giving reference to OptionExpress and still collecting your 'subscription' money. It offers nothing more than a primitive version of of TOS OnDemand... I have much more to say, but I don't want to waste anymore of my time on this ...If you want some decent backtesting tools for options, take a look at www.edeltapro.com/ or other sponsors on here...