Agree "in theory".
But after this month I am now personally doing some serious introspection to figure out if I ever again want to sell premium. The high degree of ratified global contagion and global market coupling we are now seeing is severe. This month could have been a LOT worse if just a few more negatives came out at the worst time to drive it all down to the gutter.
In my opinion, as a spreader, it's no longer a matter of getting higher premium when the "real" volatility is actually much higher. Technicals are blown out like wet cardboard in times like this. It's clear to me that its more than just speculative froth getting shaken out (either by design or by circumstance). I think its clear now that we have a very risky, complex and circular global co-dependency of currencies, derivatives, equities, bonds, economies and lots of good faith all cross linked. It as if nothing but good faith (with a non-ecumenical global congregation) is holding everything together. It's kind of like trying to contain a delicate balance of jellied pousse cafes with bail wire. This month demonstrated to me that the fundamental nature and character of the markets are forever changed. I doubt anyone on the planet knows how to ride or break this wild stallion.
In my opinion, spreaders and traders everywhere are now subject to any single ripple or whim anywhere in the linked global community. The liquidity fan-out is high and the statistical probability of one nation's economy or market or politics upsetting every other market is very high. If the communist regime in China decides to change economic policy along ideological lines or even leaks a rumor of a tax etc. - boom there goes China. Then that ripples all over the planet. If the Japanese decide to toy with their interest rates or the Yen exchange - boom - there goes the Yen carry trade and the rest of the global markets reel. If Mr. Greenspan gets an urge to feel relevant again and wants to publicly buck or contradict Bernanke's assessment of the economic outlook to sell a new book - BOOM there goes the global markets again.
It's now simply impossible to reasonably assess or calculate the odds of success (e.g. the risk) in any one period to any reasonable degree of certainty. Technicals can be "taken out" in an instant by high level government individuals or some ol' ex FED Chairmen deciding to fart against the current market trends in stark indifference to the hundreds of billions of dollars in evaporated wealth to get new speaking fees.
At least in most gambling systems we know precisely what the odds are and can make informed and well reasoned decisions. But in this market the risk is not anywhere near as predictable. So we are now forced and psychologically conditioned to constantly operate to a "worst case" mentality. And a fear based investment posture is not conducive to beating the averages (inflation moth eaten 10 year treasures at about 4.5% ?). No, this market is now more like a complex poly-sided dice whose number of sides changes in mid-air as its tossed into the arena each day.
So, I am beginning to think its NOT going to be profitable to be underwriting open-ended and emotional global risk for any amount of premium. Metaphorically, writing for premium is now like being an insurance company collecting triple the regular premium on insured homes while a half dozen hurricanes are lined up like bowling balls just off the coast and bearing down on your policy holders. :eek:
For now I think I will play only at the fringe to the upside (given the extreme discounting and potential buying pressure I mean only at the stratosphere). I think I will only seriously play the downside again when I see the reaper swoop down deep to get a lot more trader blood flooding in the gutters. Until that happens I will limit my downside activity to opportunistically swinging in and out briefly like a vulture (maybe a day or two of risk exposure) to scoop up the dimes and quarters of flesh shaking out of the pockets of those still holding old calender PUT spreads.
TS
) FOTM IC's...but perhaps a good market to trade call credit spreads with some hedges in place.
The trigger happy ones will get killed and the patient ones will survive it.