The #1 Skill In Selling Options

R1234 said:
From academic papers I have looked at, selling premium seems like an inferior strategy. I've seen long term backtests on it and it always seems to blow up at some point.

I guess it's just my preference, but I feel like making directional bets and being long volatility is 'real' trading.
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Directional bets is not any more profitable either because you are limited by theta if you go for short-term. Options is really best for hedging and not for speculation, period because it's rigged always in favour of the dealer just like the casino. It's a venture where when you lose you will always lose more than you win and when you win, you are always limited in how much you can cash out despite the fact that it advertises that your payoff is supposed to be infinite. When you long in volatility where your payoff is supposed to be infinite, you pay up a lot more and you are limited by theta where the dealer changes the game and says I will only pay up when the price moves this amount by this amount of time so even if moves the amount predicted but because it didn't move by that time, the dealer says sorry I can't pay up that much. So then you thought ok if my profit potential is limited by theta, why don't I become the dealer and sell options and limit others' potential profit by theta so that way I don't have to pay up when the price didn't move X amount by X amount of time, then the dealer turns around and pushes up gamma so much that it makes theta move in the opposite direction so it doesn't limit profit potential anymore and the price moves up so much that you are forced to pay up and lose lot more than you gain and the dealer wins again. So it's basically when you are long in volatility, you don't get paid and when you short in volatility, you get fucked in the a$$. Either way you don't get paid and the casino does all the time.

But when you are hedging, it's different because you are not using it to make money; you are using the underlying to make money and options is just a cheaper way to recoup some losses if you are incurring it on the underlying. When the underlying is making money, it's making enough to cover the cost of the options and when it's making losses, the gamma on the options will take over and make the options increase in value for you to recoup the losses. So theta doesn't affect you as much anymore and you are taking full advantage of gamma.
 
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WTF are you smoking,and would you be open to sharing??

TheDawn said:
Directional bets is not any more profitable either because you are limited by theta if you go for short-term. Options is really best for hedging and not for speculation, period because it's rigged always in favour of the dealer just like the casino. It's a venture where when you lose you will always lose more than you win and when you win, you are always limited in how much you can cash out despite the fact that it advertises that your payoff is supposed to be infinite. When you long in volatility where your payoff is supposed to be infinite, you pay up a lot more and you are limited by theta where the dealer changes the game and says I will only pay up when the price moves this amount by this amount of time so even if moves the amount predicted but because it didn't move by that time, the dealer says sorry I can't pay up that much. So then you thought ok if my profit potential is limited by theta, why don't I become the dealer and sell options and limit others' potential profit by theta so that way I don't have to pay up when the price didn't move X amount by X amount of time, then the dealer turns around and pushes up gamma so much that it makes theta move in the opposite direction so it doesn't limit profit potential anymore and the price moves up so much that you are forced to pay up and lose lot more than you gain and the dealer wins again. So it's basically when you are long in volatility, you don't get paid and when you short in volatility, you get fucked in the a$$. Either way you don't get paid and the casino does all the time.

But when you are hedging, it's different because you are not using it to make money; you are using the underlying to make money and options is just a cheaper way to recoup some losses if you are incurring it on the underlying. When the underlying is making money, it's making enough to cover the cost of the options and when it's making losses, the gamma on the options will take over and make the options increase in value for you to recoup the losses. So theta doesn't affect you as much anymore and you are taking full advantage of gamma.
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So, what exactly is a directional bet with long vol?
Long vol as in buying options as opposed to selling options?

You mean that’s how the smart money trades while the retail is “educated” on the smartness of selling otm options?

When SPY trades up, the realized vol will be less than the implied, don’t you need to short the vol here? I guess my question is what is the go to structure for a directional bet with long vol? Is there one structure for up market and one for the down?
 
emulimu said:
So, what exactly is a directional bet with long vol?
Long vol as in buying options as opposed to selling options?
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Yes. That's what the "professional" term any way. Buying options is referred to as long in volatility and when you sell options, you are shorting volatility.

emulimu said:
You mean that’s how the smart money trades while the retail is “educated” on the smartness of selling otm options?
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I don't know how the smart money trades. Somebody said that they hedge after taking the opposite side of our positions. All I know is whatever we retail traders, we always lose money. You sell options, you make good money majority of the time but eventually you blow up on a day when the volatility really explodes and you give back everything that you have made and then some. If you buy options, you lose money pretty much on every single trade until this one time you hit a bit of a jackpot but it's never enough to make up all the losses that you made before so you still end up losing money.

emulimu said:
When SPY trades up, the realized vol will be less than the implied, don’t you need to short the vol here? I guess my question is what is the go to structure for a directional bet with long vol? Is there one structure for up market and one for the down?
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Vol is directionless I find. When volatility goes up whether because of the price going up or down, the realized volatility will always have a possibility of becoming larger than the implied volatility. I don't know what you mean by a "structure" but the options' price up until a certain strike essentially go up when volatility goes up for calls or puts. There are people who have asked here before whether puts prices go up when the underlying prices go down more than calls when the underlying goes up and that I haven't observed and nor have I seen any studies that actually looked at this phenomenon.
 
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