theta is the edge correct?
- Thread starter noob_trad3r
- Start date
I agree. This argument has been argued again and again and again. Experienced trader: " undefined short gamma risk is dangerous." Newer trader: "No its not becasue...." I recall on this board way back when I lucked out with a short gamma trade and made a good profit. One smarter trader than I said, "you can do this type of trade 100 times and make money and the 101 st time it can blow out your account." I listened and never did it again.
I hope you guys understand that there are several studies that do indicate a Buywrite/Putwrite strategy will overperform over the long term the indexes.
Obviously you could take bigger risks by taking big bets on single stock. But compared to someone who just sticks his money into some Mutual fund I would say it outperforms.
My own experience also shows much better returns as well when selling covered strangles on the SPY and IWM VS a naked index equity position.
Now my account is about 5.2M in AUM (cash and securities for my options equity insurance business) and I keep 1.5 years of expenses in cash (I live below my means, only two homes both paid for one in NY in Brooklyn Heights(bought in the early 80s) and one in Miami(bought in the late 90s) 3 cars paid for ie: Jeep wrangler and his/her auto mainly for Miami, NY you dont need autos) and the rest is used for my portfolio. I do not borrow at margin to short these options and I can hold a position if need be and can take big draw downs which is of course typical during the life of an options contract.
Anyhow I live pretty much from the Options and Dividends income and the big secret is Obviously for young people is to live below your means, build up a strong capital position and be smart about managing your money.
Theta does provide an edge because you might not get the Hole in one when it comes to picking the exact price, but in the end the limited life of an option + theta decay is definitely an edge VS the traders who speculate by going long options over a period of time anyhow that is my experience.
Obviously you could take bigger risks by taking big bets on single stock. But compared to someone who just sticks his money into some Mutual fund I would say it outperforms.
My own experience also shows much better returns as well when selling covered strangles on the SPY and IWM VS a naked index equity position.
Now my account is about 5.2M in AUM (cash and securities for my options equity insurance business) and I keep 1.5 years of expenses in cash (I live below my means, only two homes both paid for one in NY in Brooklyn Heights(bought in the early 80s) and one in Miami(bought in the late 90s) 3 cars paid for ie: Jeep wrangler and his/her auto mainly for Miami, NY you dont need autos) and the rest is used for my portfolio. I do not borrow at margin to short these options and I can hold a position if need be and can take big draw downs which is of course typical during the life of an options contract.
Anyhow I live pretty much from the Options and Dividends income and the big secret is Obviously for young people is to live below your means, build up a strong capital position and be smart about managing your money.
Theta does provide an edge because you might not get the Hole in one when it comes to picking the exact price, but in the end the limited life of an option + theta decay is definitely an edge VS the traders who speculate by going long options over a period of time anyhow that is my experience.
Let me be the first to congratulate the original poster on his success in trading! He's made 7.48%, while the vast numbers of those with retirement funds invested in index-tracking instruments have made only .90%. The difference may not be huge, but money's money. He calls himself a noob, and for a noob, he's doing better than most (don't 80-90% lose it all?). To one poster's point, IV perhaps should be taken into account if he's not going to hold until expiration, but if the options are near-term, vega shouldn't be so high as to decimate his returns. If the implied really pops, he can just wait out the trade until expiration, as the puts are cash-covered. The main question should be whether you want to get stuck with an asset that not too long ago lost over 56% of its value and still hasn't anywhere near fully recovered. It might be good to diversify even among inherently diversified products. I don't know, maybe write some puts on the TLT, the treasury bond etf, which went up while SPY was going down.
Well, yes and no. The BXM will always outperform during down markets but most of the time it will lag in an up market.
The BXM modestly outperformed the S&P 500 over the past 15 years or so but that's because the trend of the market over that time period has been up (SPX up 2-1/2 times).
As MTE advised the OP, he shouldn't mistake a bull market for brains.
Doesn't the BXM index depend on an assumption and actually is based on the assumption that all covered calls are closed out at expiration? If so, a sharp decline of the SPX the BXM assumes the trader can hold the covered short calls until expiration has the cash to cover a margin call or not be psyched out being pummled by negative gamma and increasing negative vega.