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

[Overnight]

...Buying the S&P 500 - could go to zero tomorrow - complete ruin!...

Bad example. The SP has a zero chance of going to zero tomorrow, or ever, simply by it's design.

On the other hand, that ETN called the "XIV" had a 100% chance to go to zero, by design. It was even in their prospectus. And thus it came to be, and is no more.

 

[Saltynuts]

So you close at possibly huge loss? I have been playing around with selling covered straddles (most commonly referred to covered call plus short put). I find that this strategy is only “worth” doing on high volatility stocks which can really hurt you. So back to playing it small for premium selling.

So, if your scenario is that the underlying gaps one way HUGELY, and I mean HUGELY, before you can close you first put/call sells and sell new ones, is there any strategy OTHER THAN closing at a loss? The question you are asking is akin to: If you own the SP500, and you wake up tomorrow and its down 50%, are you going to close that trade at a loss? LOL, do what you want but you are down 50%.

If you've done the research, and my proprietary strategy does NOT work, then are you saying the ones that are buying both puts and calls every month on the same stock(s) (the opposite of what I am going to do) are making the money? I find that hard to believe lol.

 

[Saltynuts]

Bad example. The SP has a zero chance of going to zero tomorrow, or ever, simply by it's design.

On the other hand, that ETN called the "XIV" had a 100% chance to go to zero, by design. It was even in their prospectus. And thus it came to be, and is no more.

Come on Overnight, you are being fescious here. Communist revolution happens. All private property is seized and automatically belongs to the government. All interests in any kind of property, tangible, intangible, or otherwise is cancelled and all companies belong to the new government. SP500 is at zero.

I'm not saying its probable, or even likely, but come on, it is a theoretical possibility. Have you not seen Red Dawn lol?

 

[qlai]

my proprietary strategy

You were talking about a generic strategy. At what IV are you selling?

are you saying the ones that are buying both puts and calls every month on the same stock(s) (the opposite of what I am going to do) are making the money? I find that hard to believe lol.

The underlying is going to be moving around, so you both can be loosing money or you both can be making money depending where you get out, right?

 

[Saltynuts]

You were talking about a generic strategy. At what IV are you selling?


The underlying is going to be moving around, so you both can be loosing money or you both can be making money depending where you get out, right?

1. IV - I eyeball it. What does that even mean lol? These dork equations don't come into play.

2. You are thinking like a loosey-goosey trader. I am thinking about a mathematician. I'm not trying to predict the stock market, just print money...

 

[qlai]

Ah, understood. Good printing to you then.

 

[JSOP]

Selling short straddles is like printing free money

- until it's not and is taking money from you

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!!!".

Which part of "loss potential is unlimited" do you see as a demonstration of "printing free money"?? LOL What's the point of printing free money when one day all of it will be taken away from you and more? LOL

convince me I'm wrong

-Consider yourself warned. I have heard people say so often that shorting options is like picking up pennies in front of a steam roller. Well I guess shorting straddles is like picking up pennies in front of a steam roller and getting rewarded with another penny while getting steamrolled. Won't bother to convince you. You will experience it soon enough with a negative account balance after getting steamrolled.

 

[Aquarians]

A lot of negativities and few encouragements.

Lots of energy vampires around this board. For reference:

When a gullible newbie appears, it's like feasting on virgin blood:

 

[MrMuppet]

Don't feed the troll guys

 

[TheBigShort]

At first I was not too sure if your original post was serious. But it looks like you are being serious.

Instead of focusing on the exact question "Does selling vol make lots of money"? I think it will be more insightful to talk about strategy. Note there are also countless papers on the returns of selling variance that will explain it much better than i can(spoiler alert there is no silver bullet) .

Whenever you think a strategy will make large returns on capital - in this case "hundreds of percents a year" - it will have to meet at least 1 of 2 criteria: 1) Hard to take advantage of 2) Low capacity.

1) Hard to take advantage of: This could be caused by rules and regulations, large transaction costs to trade in the market, high upfront cost to start the business (infrastructure), etc..

2)Low Capacity: Once you reach a certain size it is hard to trade without moving the market. These strategies are usually left alone by larger players.

Anyone with a brokerage account can sell options and there is lots of capacity especially on large names/indexes. So right off the bat this strategy is not going to make hundreds of %'s a year, not even close. Never forget you are trading in a market place - People who do not have good strategies will become smaller and people who have good strategies will become larger. Eventually the sellers will have grown so big (because they are making 100's of %'s) that the supply will outweigh the shrinking pool of option buyers(losing players).

But as Aaron Brown would say - "take the bet!" Bet big enough that it means something and you learn from it but not too big that it causes you hardship.