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options . . . very hard to make money
- Thread starter billyjoerob
- Start date
Quote from e_trader_pro:
Options are NOT zero-sum. You have no idea what the person on the other side of your trade has done against it. Options are a tool for risk transfer much the way insurance is. I can buy puts to "insure" a long stock position. If the stock goes up, I win on my stock position, and the person that sold me the puts wins on their put position. We both win. While I gave a little of my profits up by purchasing a put, I got the utility of sleeping at night not worried that I could lose everything. It's win-win.
The options market for non-market makers is "zero-sum" and becomes negative due to spread and commissions. How you may combine options with other holdings does not change the fact that for every dollar "won" in the options market there is a dollar "lost" by someone else.
Joe.
Quote from atticus:
Short gamma/vega.
If you wouldn't mind, Atticus, specifically what strategy was this fellow using? 3,300% in a couple of years is no small achievement. I'm trying to imagine how he might have profited from short gamma and vega. Was it butterflies? Just a guess.
Thank you,
Steven
Quote from u21c3f6:
The options market for non-market makers is "zero-sum" and becomes negative due to spread and commissions. How you may combine options with other holdings does not change the fact that for every dollar "won" in the options market there is a dollar "lost" by someone else.
Joe.
That is not true.
Your perspective is off.
For example, if I elect to write a covered call, I am stating that I am willing to sell my stock at the strike price. Plus, I collect a premium. When the stock moves much higher, I lose NOTHING.
I was going to ell my stock anyway, so I lost NOTHING. In fact, I also profited by the option premium.
The option owner made a nice profit, but I have no loss.
It is misguided To believe that any time you do not get the absolute best possible price when trading it is a 'loss'
If I use options to limit my profits, and if I earn that maximum profit, I have lost nothing.
Mark
Quote from dagnyt:
That is not true.
Your perspective is off.
For example, if I elect to write a covered call, I am stating that I am willing to sell my stock at the strike price. Plus, I collect a premium. When the stock moves much higher, I lose NOTHING.
I was going to ell my stock anyway, so I lost NOTHING. In fact, I also profited by the option premium.
The option owner made a nice profit, but I have no loss.
It is misguided To believe that any time you do not get the absolute best possible price when trading it is a 'loss'
If I use options to limit my profits, and if I earn that maximum profit, I have lost nothing.
Mark
You are combining your options with other holdings which does not change the structure of the options market. You may not have a net loss on your combined holdings but if someone profited off an option you sold, you funded that profit by receiving less than your asset was worth. The options market in and of itself is a zero-sum proposition.
Joe.
That's called distinction without a difference. Very few people care whether the "options market in and of itself" is anything. By the same token, the futures market as a whole is a "zero-sum proposition".Quote from u21c3f6:
You are combining your options with other holdings which does not change the structure of the options market. You may not have a net loss on your combined holdings but if someone profited off an option you sold, you funded that profit by receiving less than your asset was worth. The options market in and of itself is a zero-sum proposition.
Joe.
Quote from stevenpaul:
If you wouldn't mind, Atticus, specifically what strategy was this fellow using? 3,300% in a couple of years is no small achievement. I'm trying to imagine how he might have profited from short gamma and vega. Was it butterflies? Just a guess.
Thank you,
Steven
3300% in 2 years by short vega/gamma is extremely unlikely. The more likely scenario is long far OTM and got lucky.
Quote from ammo:
even more likely is a premium seller,otm calls or puts
You'd have to sell a heck of a lot of premium to make 3300% in two years. When you sell an option short you must either set a substantial amount of money aside as margin or must hedge, which for most trades still requires some margin, and reduces your profits. It's not as though you can just sell $80,000 worth of OTM puts or calls in an account with $100,000 in it, no matter how confident you are that they're all going to expire worthless. Also if you don't hedge the day will come when you blow up, guaranteed. In 2008 a lot of put sellers blew up real good.
Retail traders who are very good at it do well if they consistently make 40% a year selling option premium. A truly exceptional trader might make 100% a year (although most of those 10%-a-month guys blow up). I just can't see any way anyone is going to make 3300% in two years selling option premium.
My guess is that the 3300% guy was long on some OTM options and was very, very lucky (or very, very astute at guessing market direction, in which case, he should start a hedge fund).