Quote from riskarb:
With respect to the "JohnK" post, I will only add that anyone who's survived in this business has paid his/her dues many times over, and to ridicule or demand hand-holding is really a poor way to approach experienced traders for direction or advice.
There is no formal mentorship, no union, no on-the-job training available to the retail/upstairs options trader -- you either learn, or burn.
Saturnine, great thread, especially enjoyed your analogies w.r.t. wingspreads. To that end, I will add my $.02 regarding positive expectation and scale of LR vs. UR strategies.
When trading options as a profession, you quickly align yourself in one of two camps: long or short gamma, - or + expectation. The long gamma crowd typically arise from the floor, a vestige of firm trading in which there was a edict to go home net long. This methodology works just fine when there is the +expectation of a weekly paycheck, when the -expectation is backed by a trading firm.
Short gamma traders are an inscrutable bunch... they enter the game with one overriding concern, income production. The tend to view their trading as leveraged-FI terms -- consistent income generation, to eschew home-runs for on-base %.
For me, long gamma trading is a dormant, deeply-recessive gene. I can't for the life of me enter into a strategy that entails a negative expectation, which includes long gamma scalping as well as equity/futures daytrading. Not to say that it cannot be profoundly profitable, it's just an anathema to my trading, always has been.
Yes, I trade URO-positions, I am net short premium! Every single day of the year, and have been for the last 20. I've survived '87, '91 and 9/11. My largest account trades net long gamma, but it's in a public fund and it's required by charter. I only trade long-gamma as portfolio protection, never for a distinct vega play.
For me, the argument to trade wingspread vs. URO is a easy choice, as the outlook for each position w.r.t. position size and scale are simple to dissect.
Using daily theta, or a risk-adjusted parm, such as gamma/theta when comparing the payoff on a long butterfly vs. frontspread or short straddle/strangle, it becomes quickly apparent that the butterfly trade will require a large contract exposure to equate to the daily decay curve of a single short straddle. If I were to risk $20k in debit on a call butterfly, why should I be terrified of trading a single NDX straddle which has the equivalent decay profile and P&L distribution under 2-3 Sigma?
Anyway, sorry for the rambling, it's Friday and I should leave it here...
Best,
riskarb
I do too, has worked well for me so far, except I don't sell premium (long calls right now) because my account is too small, I hope to start in the future though