Selling short straddles is like printing free money convince me I'm wrong

[Saltynuts]

Some people be like "yo, if you sell both a put and a call your risk of a disaster trade doubles dude!!!!".

Others be like "whoa bro, if you sell a call you loss potential is unlimited!!!".

Maybe all that is theoretically true, but realistically is there any easier way to print money, other than printing money itself if you are the Fed?

I mean, you sell both a put and a call. If the underlying goes up, not only do you have the call premium to cover you, but you got the put premium as well. The put guy is literally eating what would have otherwise been your loss. Reverse if the underlying goes down, the call buyer is eating your loss for you.

Now, of course, if the underlying goes up or down TOO much, it could cut into your profitability (or actually cause a loss). HOWEVER, at the point in which it would become unprofitable (or thereabouts, whatever makes you comfortable), you close out your initial positions and sell new calls and puts closer to the market. That way changes in the prices of the underlying are effectively being borne by the guy that bought your puts/calls, not you.

Its like money in the bank. Hell, I wish I knew how to start a hedge fund, I'd make a hedge fund that does just this and earns ROIs of hundreds of percents a year...

 

[cdcaveman]

One day you wake up and your account is in the negative...what's the point of the trade of profits if it knocks you out of the game one day

 

[zdreg]

Nobody ever thought of your idea.

Its like money in the bank. Hell, I wish I knew how to start a hedge fund, I'd make a hedge fund that does just this and earns ROIs of hundreds of percents a year..

Wall Street is looking for a genius like you.

Bottom line you know next to nothing about stock prices and options. Since you think differently start using your proposed strategy with your own portfolio and report back in a year.

 

[Overnight]

Some people be like "yo, if you sell both a put and a call your risk of a disaster trade doubles dude!!!!".

Others be like "whoa bro, if you sell a call you loss potential is unlimited!!!".

Maybe all that is theoretically true, but realistically is there any easier way to print money, other than printing money itself if you are the Fed?

I mean, you sell both a put and a call. If the underlying goes up, not only do you have the call premium to cover you, but you got the put premium as well. The put guy is literally eating what would have otherwise been your loss. Reverse if the underlying goes down, the call buyer is eating your loss for you.

Now, of course, if the underlying goes up or down TOO much, it could cut into your profitability (or actually cause a loss). HOWEVER, at the point in which it would become unprofitable (or thereabouts, whatever makes you comfortable), you close out your initial positions and sell new calls and puts closer to the market. That way changes in the prices of the underlying are effectively being borne by the guy that bought your puts/calls, not you.

Its like money in the bank. Hell, I wish I knew how to start a hedge fund, I'd make a hedge fund that does just this and earns ROIs of hundreds of percents a year...

Why not try it then?

 

[caroy]

Some people be like "yo, if you sell both a put and a call your risk of a disaster trade doubles dude!!!!".

Others be like "whoa bro, if you sell a call you loss potential is unlimited!!!".

Maybe all that is theoretically true, but realistically is there any easier way to print money, other than printing money itself if you are the Fed?

I mean, you sell both a put and a call. If the underlying goes up, not only do you have the call premium to cover you, but you got the put premium as well. The put guy is literally eating what would have otherwise been your loss. Reverse if the underlying goes down, the call buyer is eating your loss for you.

Now, of course, if the underlying goes up or down TOO much, it could cut into your profitability (or actually cause a loss). HOWEVER, at the point in which it would become unprofitable (or thereabouts, whatever makes you comfortable), you close out your initial positions and sell new calls and puts closer to the market. That way changes in the prices of the underlying are effectively being borne by the guy that bought your puts/calls, not you.

Its like money in the bank. Hell, I wish I knew how to start a hedge fund, I'd make a hedge fund that does just this and earns ROIs of hundreds of percents a year...

I believe the short straddle has an edge as implied volatility trends higher than realized volatility. But it's how do you hedge and protect against blowout risk? Gap risk? a 4SD move? You can reverse gamma scalp as the underlying moves away but why not just buy some wings to limit your risk and lower the buying power for the position? An Iron Fly. Rolling up the untested side doesn't do much to control your delta in a run away market where the b/a spread sucks. I'd agree the long straddle with many DTE is generally a sucker's bet. I like playing the long straddle only on expiration day or before earnings. I'd rather be long gamma at expiration than short it.

 

[TimtheEnchanter]

You just single-handedly eliminated poverty.

 

[MrMuppet]

Karen? Is that you?

 

[Option_Attack]

Cool idea, bro. Damnnnn...you could have SLAYED it by selling straddles on GME a few weeks ago. Prems were outasite on that badboy!

Selling Covered straddles or strangles may be okay, but there are better ways to trade. But if you, for example sold a naked straddle on GME after it doubled in early Jan (why not, it's not likely to double again - right?) you would be working double shifts collecting carts at da Walmart, like the other WSB goofs.

 

[ironchef]

A lot of negativities and few encouragements.

Actually not a bad thought but the devil is in the details.

Think about this: If you can make money trading the underlying directional, or trading single leg directional or butterfly directional you should be able to make money trading straddle. In principle, all things been equal, it should give you higher profit than an iron butterfly?

 

[Saltynuts]

Cool idea, bro. Damnnnn...you could have SLAYED it by selling straddles on GME a few weeks ago. Prems were outasite on that badboy!

Selling Covered straddles or strangles may be okay, but there are better ways to trade. But if you, for example sold a naked straddle on GME after it doubled in early Jan (why not, it's not likely to double again - right?) you would be working double shifts collecting carts at da Walmart, like the other WSB goofs.

Obviously I'm not talking about going all out putting all your marbles all in one basket, I'm not insane, and I think you might be insane for thinking anyone is that insane without any hard-core proof of same. If you were selling short straddles on 100 different stocks, and GME was just one of them, I suspect you would have barely noticed the blip, and overall still been well positive for the month. Obviously managing 100 different short straddles is a bit of work, but work is my middle name. I'm willing to work harder than the next guy to print money if that is what it takes...