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Profit from market neutral options writing - possible or not?
- Thread starter 1.6180340
- Start date
Quote from GTS:
The cost of the hedge will be proportional to the amount of risk you lay off.
There is no free lunch.
I see what you mean, but if thats true then it would be impossible to make somewhat consistent profit doing...well just about anything. You cant really believe that can you? Otherwise what are we we even doing here? Might as well buy a lottery ticket.
If you don't have an edge then you should not expect to make money.Quote from jonbig04:
I see what you mean, but if thats true then it would be impossible to make somewhat consistent profit doing...well just about anything. You cant really believe that can you? Otherwise what are we we even doing here? Might as well buy a lottery ticket.
If you do have an edge then there is often a multitude of ways of making money.
Writing "market neutral options" is not an edge - you need something else.
Quote from GTS:
If you don't have an edge then you should not expect to make money.
If you do have an edge then there is often a multitude of ways of making money.
Writing "market neutral options" is not an edge - you need something else.
I see. What's your edge? haha I bet you wont tell me. Can you give me an example of what someones edge might be like? Or is that too broad of a question.
The point simply is that by simply using a random strategy such as selling an OTM put and an OTM call a couple strikes out (and thus selling short volatility) you don't have any edge that will enable you to outperform a simple long investment in the SP500 on a risk adjusted basis over the long term.
Knowing which way the market is going to go (or not go) is an obvious edge. And by "know" I mean probabilities, not certainty - e.g. anything that gives you better odds than a random guess about the market direction is an edge.Quote from jonbig04:
Can you give me an example of what someones edge might be like? Or is that too broad of a question.
Just like a card counter playing blackjack gets a slim edge by being aware of a skew in the distribution of the remaining cards, you need to have some additional information that gives you an edge over other players, especially in a zero-sum environment like options.
Both replies make a lot of sense. What you're saying is to have an edge like the house does is in a casino. Sure the casino loses sometimes, but they always always make more b/c of their built in mathematical edge. I do understand that options are zero-sum. I guess the best thing to look for is to take advantage of the people that buy out of the money options. If we can somehow be the "house" and take the money of all the people that are gambling. This helps me put everything into perspective.