Options only portfolio money management and diversification

[qlai]

It's been said that options premium selling (or any short gamma strategy) is equivalent of "eating like a bird and shitting like and elephant." In other words, they take all their volatility at once which causes them to blow up.

Most online advise I follow teaches to sell premium. Then they say invest only about 50% of total capital. They say try to diversify, but I don't think it's as easy to do with options as with futures/equities. So I have an impression that individual/retail option trading is for people trading with play money or ex traders who just trade part of previously earned pot to juice up returns. Are there any traders making living trading options ONLY portfolios (not OPM) investing up to 100% of their capital? How do you mitigate risk? How do you position size and diversify when, essentially, you are either long volatility or short volatility? I realize volumes could be written on this subject and that my assumptions may be naive/invalid, but that's the point of the post. Thank you.

 

[tommcginnis]

Al Sherbin.

 

[eaglefeather]

Trading is 98 percent psychology and 2 percent luck. Have you listened to Mark Douglas' videos widely available on youtube? If you can crack the code to hedge a 1 delta long stock position you are there. Sounds like you desire cash flow income while hedging your risk of ruin? Collars.

 

[ironchef]

Most online advise I follow teaches to sell premium. Then they say invest only about 50% of total capital.

Most online advice are disingenuous telling newbies like us that one can make a living or get rich selling premium. They demonstrated their claims by showing in actual trades that 70% to 80% of the trades were winners and made believers out of new recruits who willingly pay lots of $$ to learn selling premium from them.

And if you risk 50% of your capital, chances are you will be wipe out. Read up on Karen the supertrader and you will understand.

There is no edge in selling premium if you do it mechanically and blindly. The market is quite efficient. Back in 2013, for six months, I mechanically sold calls and puts, making hundreds of trades (real trades, not paper trades). After commissions and slippages it was worst than just buy-and-hold the underlying.

If it is such a good deal, why would your counter parties make the trade? OK, so the online advice said that is because the buyers are buying insurance and are willing to pay. However, don't forget, options are priced based on the no arbitrage principle. If there is an edge selling, someone would have arbitraged the edge away, because it is free money to the arbitrageur.

I do sell premium since 2013 but only under certain conditions.

Good luck to you and welcome to the option traders' club.

 

[qlai]

There is no edge in selling premium if you do it mechanically and blindly

I do think there is an edge in it, not blindly of course. One of my favorite books is Profiting with iron condor options by Benklifa. But he is saying only sell on days when volatility spikes, have enough time left to expiration, expect to capture about 50% of initial premium. Of course once volatility spikes, it often just the start. So I am like, not worth my time ... Maybe once I'm retired

 

[ironchef]

I do sell premium since 2013 but only under certain conditions.

I do think there is an edge in it, not blindly of course. One of my favorite books is Profiting with iron condor options by Benklifa. But he is saying only sell on days when volatility spikes, have enough time left to expiration, expect to capture about 50% of initial premium. Of course once volatility spikes, it often just the start. So I am like, not worth my time ... Maybe once I'm retired

We are saying the same thing. One can buy premium and make money too especially in this raging bull market.

Just want to make sure new options traders (I was one, back in 2013) do not wrongly believe anyone can sell premium for a living and get rich doing it without understanding options.

 

[spy guy]

It's been said that options premium selling (or any short gamma strategy) is equivalent of "eating like a bird and shitting like and elephant." In other words, they take all their volatility at once which causes them to blow up.

Most online advise I follow teaches to sell premium. Then they say invest only about 50% of total capital. They say try to diversify, but I don't think it's as easy to do with options as with futures/equities. So I have an impression that individual/retail option trading is for people trading with play money or ex traders who just trade part of previously earned pot to juice up returns. Are there any traders making living trading options ONLY portfolios (not OPM) investing up to 100% of their capital? How do you mitigate risk? How do you position size and diversify when, essentially, you are either long volatility or short volatility? I realize volumes could be written on this subject and that my assumptions may be naive/invalid, but that's the point of the post. Thank you.

yes I am one of those who make a living trading options. I use 100% of capital and sometimes I am 100% in the market with options. I only buy calls or puts directional and sell as soon as I have a good profit. some days I am 100% out of the market, I only stay in a short time same day out up to weeks. my secret buy low sell higher. the trick is what is high or low. what works for me is getting a feel for the movement of the market, you can if you follow it daily. I now have 112 winning trades in a row , you can too when you get the feel of the movement. I don't use stops because I buy right and limit risk by being out of the market a lot. good luck keep at it don't think you cant do it

 

[qlai]

I only buy calls or puts directional

I'm surprised that second person buys premium. Isn't it just leveraging your directional trading? Perhaps low volatility and the bull market make it work, but who am I to judge from the sidelines! Anyway, how do you diversify then? Do you do it by expiration? Do you do it by choosing un-correlated instruments? I can't imagine watching 100%

 

[qlai]

Sorry pressed too soon. Can't imagine watching 100% of my portfolio decaying day after day.

 

[spy guy]

I'm surprised that second person buys premium. Isn't it just leveraging your directional trading? Perhaps low volatility and the bull market make it work, but who am I to judge from the sidelines! Anyway, how do you diversify then? Do you do it by expiration? Do you do it by choosing un-correlated instruments? I can't imagine watching 100%

I don't diversify I only trade spy calls and puts, just one strike at a time, I can tell when to act by the rate of movement, I only buy and sell spy, I get in tune with it. this works for me in all markets, up, down or flat. I don't worry about diversification because I am only in the market a short time. I am not an investor, I am a very short term spy option trader