Quote from optioncoach:
I am more comfortable with this approach. I can go months and months without ever making adjustments or having the market swing close to my short strikes so selling the spreads month to month allows me to bring in income month after to month and reinvest it. Buying spreads is more akin to waiting for the big move to occur and I just prefer this approach as far as keeping my income reinvested.
Of course you can go months and months, you are selling options 2 STD OTM. That's the nature of the bet. You are not gaining anything by doing this. It's all an illusion. All it takes is one bad trade to erase all your positive gains. Why do you think the MM is taking the other side of that bet? It's certainly not to lose money.
Time decay is relevant because despite being a spread, the spread does have a significant rate of decay in the last week or two. Time decay affects both positions the same since the spread has a net theta. One is a debit and one is a credit so theta helps one more than the other over the course of trading this way over the year.
OptionCoach, theta is a non event. You are getting the theta at the expense of gamma and vice versa. The two are the same. A vertical debit and a vertical credit spread are synthetically the same thing at the same strike (put to call parity).
More importantly debits are out of pocket money. Credit spreads allow me to have 100% of my money invested elsewhere earning interest or dividends while the positions are in place. Debit spreads means the same amount of money minus the debit only can be invested. Over the course of the year it could mean an additional couple of % in returns. It is something I like that makes me choose one over the other.
Debits are the same thing as credits at the same strike. Again, put to call parity. It's an allusion that you think you are gaining something because you received a credit.
I am comfortable with this approach so I do not mind the 1 or 2x a year I have to make adjustments. Stress is all part of trading and I have to accept it as a price for the profits I make.
You are missing the point. One or two times a year is all it takes to wipe out the small tiny profits you made all year. That is why those options are priced the way that they are. Do you really think MM's are just giving you that spread 2 STD OTM out of charity? They are giving it to you because they intend to make money on it.
But others may want to investigate doing it and see if they prefer that approach. I do not see one more right I just find the advantages of credit spreads in this case to be preferable for me.
I just believe that you have very little option experience as the understanding of synthetics and put to call parity is very elementary and is absolutely crucial to understanding options. If you would buy the spreads, the advantage you would gain would be that you could just sit on them all the way through expiration without making adjustments that will actually take money out of your pocket. You most likely will only hit 2 trades a year, but do the math. multiply the two winners against the small tiny debit you are losing 10 times a year. You will see, it's a much more profitable and less stressful way to trade. This week I thought you were going to go into cardiac arrest trying to defend a .50 credit or whatever it was.
I'll tell you what. Let's do this. You keep doing your spreads the way you are doing them now. And put your money into those spreads. Then start a contra journal which is the opposite, you will be buying these spreads. And just let the two run side by side together. And then after 12 months compare the results. You will thank me a year from now.
