Premium strategy

[traider]

This is a huge and complex question. Not a quick answer for you. First understand Risk vs. Reward. Second Option Greeks and how options are priced. Then decide if you will trade Options on Futures or Equities. We are paid for taking risks. Sure you can structure an options trade that will be almost "risk-free" but then your costs will eat up most of any profit potential. I sell Premium very often as an income strategy. Lot's to understand to do this consistently with profit. It involves Dynamic Hedging. Most anyone can learn this but to do so, requires a carefully structured plan. A good understanding of Game Theory is also a benefit to understand the successful execution. I am not trying to be cryptic or to overly complicate but requires a further explanation of what you are seeking to gain by your question. YES, premium selling does generate potential profits. Lot's of info online -- most may be less than accurate. There are plenty of newsletter sellers that will provide "picks for selling premium". If you want the formula for selling premium successfully it will depend on your risk tolerance and your available capital for margins. The answer is proper allocations and hedging your risks.

Is there any info on the optimum dynamic hedging strategy? Do you implement it systematically or based on discretion?
How do you decide if option implied vol is overpriced?

 

[nooby_mcnoob]

Ah I see, try this book:

 

[TheBigShort]

Ah I see, try this book:

LOOL. Good sense of humor you have mcnoob!

 

[ironchef]

what are good strategy to do ?

Read this thread:

https://www.elitetrader.com/et/threads/writing-options-for-a-living.53037/

It is free, no need to buy a book. And if I were you, I pay attention to Maverick74's posts.

 

[JSOP]

can you point to some articles that talk about such strategy pls

I can even point to a book that talks about the strategy that you mentioned:

Complete Guide to Option Selling
Only 16 left at amazon.com!!!

 

[sle]

12

42. The answer is always 42.

 

[sle]

It is free, no need to buy a book. And if I were you, I pay attention to Maverick74's posts.

I can even point to a book that talks about the strategy that you mentioned:

Complete Guide to Option Selling
Only 16 left at amazon.com!!!

You guys are mean

 

[ironchef]

You guys are mean

No so sir.

In that thread, the risks of selling options were explained and I stopped selling naked options to make "high win rate, easy money", after waded through 100 pages.

 

[JSOP]

You guys are mean

Fine, fine, I will refer him to study Steven Cohen, the LEGENDARY trader, there.

 

[JSOP]

No so sir.

In that thread, the risks of selling options were explained and I stopped selling naked options to make "high win rate, easy money", after waded through 100 pages.

Tbh naked option selling is not that scary. It's not prudent from a risk management point of view but it is doable. I've even shorted strangles during earnings time and I was OK. The key is no over-leverage and stop-loss especially if you are not hedging. No matter how much you are losing, you have to have the discipline to cut your losses and then treat it as spilled milk and move on. If you were able to sell consistently fat premiums options, losses once in a while should be sustainable. The problem with James Cordier was he didn't hedge AND he didn't stop-loss plus he was over-leveraged, triple strikes against him, that's why he was out. Same problem with Karen the Supertrader. She didn't stop-loss; she just rolled forward, deferring losses. Rolling is not stop-loss in my books; it's just delaying the inevitable and at the same time you are tying up your margin that you could've used to sell more lucrative options that might give you higher chance of winning.