Selling ITM

Philo Judeaus

Philo Judeaus

Lets talk about this.

What are the benefits? Drawbacks?

We all know selling ATM gives the best R:R plus the gamma curvature is in your favor..

We all know selling OTM gives a high POP but low reward for the risk taken...

But what about ITM? If you are confident in your directional bias and believe the underlying will buck the support/resistance you could initiate the trade ITM instead and sell hard deltas and (hopefully) the stock moves in your favored direction back to ATM/OTM.

Thoughts?
 
Selling ITM opens you up to more exercise risk and is imo is a very poor alternative to simply trading the underlying. You're capping your upside without an attractive benefit to match, unless you're the one behind the bid.

Not to mention if you're playing price trend shifts as your post implies, why would you be selling options to capture that?
 
vegamedic said:
Selling ITM opens you up to more exercise risk and is imo is a very poor alternative to simply trading the underlying. You're capping your upside without an attractive benefit to match, unless you're the one behind the bid.

Not to mention if you're playing price trend shifts as your post implies, why would you be selling options to capture that?
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Is exercise risk really "risk"?

How many times have your short options that have gone ITM get exercised?
 
AXXXISIGMA said:
Is exercise risk really "risk"?
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It's still a risk in the sense that it's something to consider when you're specifically targeting selling ITM options. It's happened to me twice in four years, and if I'd been a better trader that number would be zero.
 
EvanDM said:
How much extrinsic value was left?
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I cannot be sure, as I got an assignment note when I woke up this morning, and I did not look at the WYNN option prices at close of yesterday. I suspect that there was very little time value, and with the wide spreads, it's difficult to establish how much time value exactly there was.

(As background, I was holding 02-Aug/09-Aug put calendars, and they were deep ITM. I was going to hold thru earnings. After assignment, this morning I woke up with lots of shares and long 09-Aug puts. So, I sold the shares and the long puts, and as it turned out, I actually made a profit.)
 
vegamedic said:
It's still a risk in the sense that it's something to consider when you're specifically targeting selling ITM options. It's happened to me twice in four years, and if I'd been a better trader that number would be zero.
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If two exercises in four years is a consideration for you then you must be a long-term trader? Because if you're chalking out 2-5 trades/daily like me then that number isn't a problem. I've only been exercised once in my life and it was because I didn't close earlier like I should've.
 
AXXXISIGMA said:
If two exercises in four years is a consideration for you then you must be a long-term trader? Because if you're chalking out 2-5 trades/daily like me then that number isn't a problem. I've only been exercised once in my life and it was because I didn't close earlier like I should've.
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I was just pointing out that it's a risk but a very infrequent one if you manage your trades well enough (which I did not, twice)
 
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