Wealthy Option Traders

[TraderZones]

Quote from akivak:

It might be oversimplified, but look at the big picture. At least 75% of all options expire worthless. You can find very few big smart money investors that buy options. They usually sell them to the small investor/speculator who wants to make a killing. Occasionally you can make a killing by buying options, but the odds are against you. This is why big professional money managers usually win and small investors lose in this game. If you cannot beat them join them.

By selling options, you put the odds in your favor. Of course you need to make sure that you manage risk, this is the most important thing in this strategy. This is the only strategy I was able to make money consistently. Of course you are not going to make 5-7% every month. In some months I lost, in some months I made 15-20%.

You need some serious study of reality. That "75% " or "90%" or whatever expire worthless is in no way a guarantee of having any outperformance. It is a simple-minded view that brokers (Liberty, eg) publish to get the newbies to sign up.

If you have no edge, you will not make money longterm by writing options.

This is the attitude of the fly, 20 seconds before impacting the windshield. "Everything's fine!" SPLAT!

Seriously.

 

[akivak]

Quote from TraderZones:

You need some serious study of reality. That "75% " or "90%" or whatever expire worthless is in no way a guarantee of having any outperformance. It is a simple-minded view that brokers (Liberty, eg) publish to get the newbies to sign up.

If you have no edge, you will not make money longterm by writing options.

This is the attitude of the fly, 20 seconds before impacting the windshield. "Everything's fine!" SPLAT!

Seriously.

Please see this article - http://www.cxoadvisory.com/blog/external/blog4-23-09/
• Individual investors comprise the least successful group of index option traders. They take mostly long positions in calls and puts with time to maturity less than a month, and the average trade duration is under 5 days. Their average net return per trade is -3.4%. About 27% of individual option traders achieve overall positive net returns.
• For all investor groups, the average returns for long put positions are significantly lower than those for short put positions. In fact, the average realized returns from selling index puts are positive for all investor groups.
• For all investor groups except market makers, the average returns for long call positions are significantly lower than those for short call positions.
In summary, evidence suggests that individual index option traders tend to transfer wealth to institutional traders and market makers, but they can improve their probability of success by: (1) focusing on the short side of index options; (2) trading against trend; and, (3) practicing/learning.

Also look at http://www.iijournals.com/doi/abs/10.3905/JAI.2009.11.4.043:
The first major benchmark index for the cash-secured put strategy is the CBOE S&P 500 PutWrite Index (PUT), which was introduced in 2007 and has daily historical data back to June 30, 1986. Over the period studied, the PUT Index outperformed the S&P 500 Index with significantly lower volatility.

 

[TraderZones]

Quote from akivak:

Please see this article - http://www.cxoadvisory.com/blog/external/blog4-23-09/
• Individual investors comprise the least successful group of index option traders. They take mostly long positions in calls and puts with time to maturity less than a month, and the average trade duration is under 5 days. Their average net return per trade is -3.4%. About 27% of individual option traders achieve overall positive net returns.
• For all investor groups, the average returns for long put positions are significantly lower than those for short put positions. In fact, the average realized returns from selling index puts are positive for all investor groups.
• For all investor groups except market makers, the average returns for long call positions are significantly lower than those for short call positions.
In summary, evidence suggests that individual index option traders tend to transfer wealth to institutional traders and market makers, but they can improve their probability of success by: (1) focusing on the short side of index options; (2) trading against trend; and, (3) practicing/learning.

Also look at http://www.iijournals.com/doi/abs/10.3905/JAI.2009.11.4.043:
The first major benchmark index for the cash-secured put strategy is the CBOE S&P 500 PutWrite Index (PUT), which was introduced in 2007 and has daily historical data back to June 30, 1986. Over the period studied, the PUT Index outperformed the S&P 500 Index with significantly lower volatility.

90% of this has nothing to do with your point. The rest is not promising, unless you are institutional or a market maker.

Without an edge, you are not going to make money playing with options. If you spent more time reading the copious copy on this site or elsewhere on the web about trying to make a nice living writing options, by people who actually tried this, you may learn something.

Instead, you keep quoting newbie 101 beliefs and hopes...

 

[akivak]

Quote from TraderZones:

90% of this has nothing to do with your point. The rest is not promising, unless you are institutional or a market maker.

Without an edge, you are not going to make money playing with options. If you spent more time reading the copious copy on this site or elsewhere on the web about trying to make a nice living writing options, by people who actually tried this, you may learn something.

Instead, you keep quoting newbie 101 beliefs and hopes...

I my 6 years of trading, I personally had much more success in selling options than buying them. This is the only area that I was able consistently making money. My average return in iron condors for example is around 14%.

I’m using a combination of put writing, iron condors, calendars and butterflies. I believe that this style of options trading is the only path to consistent and repeatable profitability.

 

[increasenow]

Quote from CandleStick77:

I am posting this thread to find out what option traders here have made alot of money. I would like to keep the negative people out of the thread and here what the successful people have to say. If your out there and you have been making consistent high profit gains. Please post

Candlestick...I will read through the thread...good stuff...what have you found?..it seems as if daytrading (one, two trades per day) trading these are the ways to go:
QQQQ
SPY
NDX
RIMM
AAPL...what are some other options you like?

 

[kinggyppo]

Hey Candles,

Jan 20 intc calls .89 x .90
should I take the plunge?

 

[CandleStick77]

Quote from akivak:

I my 6 years of trading, I personally had much more success in selling options than buying them. This is the only area that I was able consistently making money. My average return in iron condors for example is around 14%.

I’m using a combination of put writing, iron condors, calendars and butterflies. I believe that this style of options trading is the only path to consistent and repeatable profitability.

Could you give me some past example trades of butterflys? I have been looking for stocks that it would actually work on and can't seem to find any. They can be extremely profitable but having a hard time finding stocks that fit the criteria.

 

[CandleStick77]

Quote from increasenow:

Candlestick...I will read through the thread...good stuff...what have you found?..it seems as if daytrading (one, two trades per day) trading these are the ways to go:
QQQQ
SPY
NDX
RIMM
AAPL...what are some other options you like?

Day-trading wow... I don' t know if I want to go down that road with options. I am more working on a fundamental view of trades to do with them. Maybe 1-5 week trades. (or longer)

 

[akivak]

Quote from CandleStick77:

Could you give me some past example trades of butterflys? I have been looking for stocks that it would actually work on and can't seem to find any. They can be extremely profitable but having a hard time finding stocks that fit the criteria.

I'm trading butterflys usually as a hedge and not standalone trade.
I know that people trade GOOG butterflys and it works pretty well.

 

[jones247]

Is your average annual return 14% or is that your monthly return? Also, is it the return on capital or return on margin?

thanks,

Walt

Quote from akivak:

I my 6 years of trading, I personally had much more success in selling options than buying them. This is the only area that I was able consistently making money. My average return in iron condors for example is around 14%.

I’m using a combination of put writing, iron condors, calendars and butterflies. I believe that this style of options trading is the only path to consistent and repeatable profitability.