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

[ironchef]

What do you mean “cheaper”?

No margin needed no need to buy the underlying to cover no need to have cash secured for the put.

 

[ironchef]

I'm just saying if you have a small probability of complete ruin...it's not a good strategy....if you use your account valve as a stop that's another story....but forced liquidation by your broker isn't a good exit strategy lol

You are correct. Often our first reaction to something new or outlandish is to point out its shortcomings. What if we try to see how it might work?

Lets think about how to protect the small probability of complete ruin. Turned out there is something call a butterfly that can protect the wings and Black Swan.

Of course everybody knows that. But butterflies have their own shortcomings too otherwise why would someone keep selling me one if he keeps losing money? So we peel the onion and look further into it and that is how we get better.

Best wishes.

 

[maxinger]

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...

That is what the professional writers would say because most options would
expire worthless.

Years ago, I'd say
Selling short straddles is like printing free money

Now I'd say
Selling short straddles is like printing your own death certificate.

 

[caroy]

That is what the professional writers would say because most options would
expire worthless.

Years ago, I'd say
Selling short straddles is like printing free money

Now I'd say
Selling short straddles is like printing your own death certificate.

I think there is a definite risk of ruin and blowing up your account but if you have a strategy based on selling straddles with solid risk management - hedging with wings - reverse gamma scalping - managing your run away deltas and gamma risk it can probably be as viable as anything else. If a trader developed these parts of the plan it could work. I'd rather trade other styles. I would say it's more exciting than the watching paint dry selling IC's but I suppose my life should be more exciting than my trading or I'm just gambling.

 

[MrMuppet]

Are you guys still not done circle jerking over this trolls shitpost??
Selling naked gamma has never been like printing money. It's a bet against realized vol. If underlying moves less than IV you win. If it moves more you lose...and sometimes it moves a lot more and then you're broke.

And by the way: You are talking about a position, not a strategy. A short straddle is a position.
You could also argue how long SPY is like printing money...same thing

/thread

 

[taowave]

Selling naked gamma is really only a bet against realized vol if you delta hedge..Most of these guys dont trade in that manner,especially the knuckleheads who "print money"..

 

[ironchef]

Are you guys still not done circle jerking over this trolls shitpost??
Selling naked gamma has never been like printing money. It's a bet against realized vol. If underlying moves less than IV you win. If it moves more you lose...and sometimes it moves a lot more and then you're broke.

And by the way: You are talking about a position, not a strategy. A short straddle is a position.
You could also argue how long SPY is like printing money...same thing

/thread

What if OP knows exactly how and where to position the straddle?

Maybe OP can comment on that?

 

[MrMuppet]

What if OP knows exactly how and where to position the straddle?

Maybe OP can comment on that?

How and where doesn't matter. The price of the straddle matters

 

[ironchef]

How and where doesn't matter. The price of the straddle matters

yes but where the stock ends matters too.

Underlying @ $100, Strike @ $110. At expiration underlying @ $110. OP wins no matter the initial price of the straddle.

 

[MrMuppet]

yes but where the stock ends matters too.

Underlying @ $100, Strike @ $110. At expiration underlying @ $110. OP wins no matter the initial price of the straddle.

May I?...

Selling naked gamma is really only a bet against realized vol if you delta hedge..Most of these guys dont trade in that manner,especially the knuckleheads who "print money"..

It doesn't matter where the stock ends when you delta hedge. And a short straddle is 100% not a fire and forget trade