Can you please give a high level highlight on this: "There are much more reliable and safer ways to make money in the market that don't require a trader to guess any of these things."
and why is this "more reliable and safer" than trading options?
Question regarding selling puts for premium
- Thread starter masudhossain
- Start date
Can you please give a high level highlight on this: "There are much more reliable and safer ways to make money in the market that don't require a trader to guess any of these things."
and why is this "more reliable and safer" than trading options?
GARBAGE a 30% drawdown trading spreads? Utter rubbish the typical iron condor would have a drawdown maximum of 5% of your qaccount when managed correctly ie credit of 35 risk a theoretical 65. I've been trading options for 16 years and lost bundles on crap such as a futures'system'- andmy broker lost bundles on a futures 'system'. directional trading is just dumb luck
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This is called an argument from personal incredulity. Essentially what you're saying is that because you can't do something, that others can't either. Obviously this is false. You've made a case for why you aren't a successful option trader and it's too much like gambling which might be true for you, but that says nothing about other peoples success or failure.
All trading involves risk, but to say option trading is inherently more risky just means that you don't understand how diverse option trading is. Obviously there are many ways to lose money trading options, and quite quickly for that matter if you're inexperienced. But there's also plenty of ways to option trade that are very safe and profitable.
Don't condemn the entire diverse world of option trading because you or others have managed to lose their shirt doing it. There are people who die driving cars, but that doesn't mean that it's too risky for me to drive my car.
It's not black and white, the entire trading world including options trading is a grey area.
I don't think too many folks appreciate your comments on this. I agree with you wholeheartedly.
Regards,
ironchef
Some additional thoughts from someone new to options:
The option business is much more complex than I ever imagined. In long or short the underlying, you have one value to worry about: Price. In options, there are so many variables they make my head spin: underlying, delta, gamma, time, vega, implied volatility, realized volatility, historical volatility, interest rate, dividend, different strikes, volatility skew, smile, correlations, covariance... and if you combined options the variables go up exponentially.
It is a game of probability and expectancy and since the market is mostly very efficient, no matter which way I "bet" if I play long enough I ended up losing due to bid/ask and commissions, just like gambling. I can and do calculate the probability, the expected returns using Black Scholes/modified Black Scholes, etc. but so can a million other traders who are probably smarter than me by a thousand times. So, why are the smart people taking my trade? What do they know that I don't?
As for selling premium for profit, I back tested (and later tried) selling premium (calls and puts) on the stocks I hold and frankly did not find mechanically selling premium very profitable compare to buy and hold. So those that find it profitable probably have other secret source.
The old timers here are a very smart bunch so I am taking your comments to heart and incorporated into my system which is now profitable. Thanks.
The option business is much more complex than I ever imagined. In long or short the underlying, you have one value to worry about: Price. In options, there are so many variables they make my head spin: underlying, delta, gamma, time, vega, implied volatility, realized volatility, historical volatility, interest rate, dividend, different strikes, volatility skew, smile, correlations, covariance... and if you combined options the variables go up exponentially.
It is a game of probability and expectancy and since the market is mostly very efficient, no matter which way I "bet" if I play long enough I ended up losing due to bid/ask and commissions, just like gambling. I can and do calculate the probability, the expected returns using Black Scholes/modified Black Scholes, etc. but so can a million other traders who are probably smarter than me by a thousand times. So, why are the smart people taking my trade? What do they know that I don't?
As for selling premium for profit, I back tested (and later tried) selling premium (calls and puts) on the stocks I hold and frankly did not find mechanically selling premium very profitable compare to buy and hold. So those that find it profitable probably have other secret source.
The old timers here are a very smart bunch so I am taking your comments to heart and incorporated into my system which is now profitable. Thanks.
I keep it simple, I use options to neutralize risk during an overnight or over the weekend hold or when I have a 95%+ accuracy setup and wish to use massive leverage.
If you're new to trading options, there's a few strategies that you can start with that you won't lose your shirt doing and will teach you the basics of how it all works.
* Full disclosure, these are not recommendations, just ideas to start your own beginner trading system. The goal is to break even or make a small profit for six months while dipping a toe in the water. You can refine strategies over time and hopefully in a few years find ways to be highly profitable and safe at the same time.
1) Selling close to the money (1-2 strikes OTM only) naked puts in an underlying you are already comfortable with holding at that price.
Example: If you like the Oil and Gas MLP's at these low prices and are ok buying AMJ at 26.89$ (currently around an 8.5% dividend) try selling the 26$ naked put for Feb or March and watch how the trade develops.
Or you could sell a naked call on Netflix around a 135 strike a couple months out. Get some experience potentially getting assigned a short, and if you do you can sell covered puts until it's gone.
2) Selling bull put and bear call spreads on stocks that you feel are nearing oversold or overbought territory. Keep allocations to 5% or less of your trading account (and likely 1% or less of your total investment account)
Example: As I mentioned Netflix is getting frothy again at 130.93$. You could try selling a 135 / 140 bear call spread a couple months out and study how the daily profit moves around. Just remember, spreads should almost never be held to expiration, so look to close them out 1-2 weeks before expiration.
3) Good ol' wide wing Iron Condors. To start, trade them entirely systematically, keep trade size small and have several open at once on different underlyings opened on different days.
Some good starting trade rules, to be refined by your OWN experience as you progress:
- Cash settled indexes only
- 52 week implied vol rank > 25%
- 45-55 days out in expiration
- collect around 15% of the strike width in premium (3$ for a 20$ strike gap in SPX/RUT, 3.75$ for 25 strike gap in NDX)
- Close based on time, say 10-14 days to expiration.
Do that for 6 months, I'm sure you'll learn enough about option trading to start developing your own advanced systems to really start making good profit.
* Full disclosure, these are not recommendations, just ideas to start your own beginner trading system. The goal is to break even or make a small profit for six months while dipping a toe in the water. You can refine strategies over time and hopefully in a few years find ways to be highly profitable and safe at the same time.
1) Selling close to the money (1-2 strikes OTM only) naked puts in an underlying you are already comfortable with holding at that price.
Example: If you like the Oil and Gas MLP's at these low prices and are ok buying AMJ at 26.89$ (currently around an 8.5% dividend) try selling the 26$ naked put for Feb or March and watch how the trade develops.
Or you could sell a naked call on Netflix around a 135 strike a couple months out. Get some experience potentially getting assigned a short, and if you do you can sell covered puts until it's gone.
2) Selling bull put and bear call spreads on stocks that you feel are nearing oversold or overbought territory. Keep allocations to 5% or less of your trading account (and likely 1% or less of your total investment account)
Example: As I mentioned Netflix is getting frothy again at 130.93$. You could try selling a 135 / 140 bear call spread a couple months out and study how the daily profit moves around. Just remember, spreads should almost never be held to expiration, so look to close them out 1-2 weeks before expiration.
3) Good ol' wide wing Iron Condors. To start, trade them entirely systematically, keep trade size small and have several open at once on different underlyings opened on different days.
Some good starting trade rules, to be refined by your OWN experience as you progress:
- Cash settled indexes only
- 52 week implied vol rank > 25%
- 45-55 days out in expiration
- collect around 15% of the strike width in premium (3$ for a 20$ strike gap in SPX/RUT, 3.75$ for 25 strike gap in NDX)
- Close based on time, say 10-14 days to expiration.
Do that for 6 months, I'm sure you'll learn enough about option trading to start developing your own advanced systems to really start making good profit.
Never trade equity options- the underlying is too unreliable and easily manipulated-even the indexes get manipulated so just think what they can do with a low volume stock. Forget equities altogether-that's where the dumb money is.