Wealthy Option Traders

Quote from spindr0:

How in the world would you have any clue as to who here makes or loses what?
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Well usually negative people are people who are pissed off because they lost of failed at what they try to do. So in return they want everyone else to fail. So they encourage them to not try and do so.

Successful people on the other hand actually give life-giving advice and encouarge people in there dreams. That it can be done. And try to point them in the direction to people or information that would help them.


Someone just listed you as a successful options trader in this thread spindr0. So I looked up threads you started and posted in. There was 1 great piece of advice that you and 1 other guy gave a beginning options Trader.


You said no 1 strategy is better then any other. It is the time and the prices that the strategy is implemented that makes someone successful. I have been pondering that and it has changed the way I view everything now. If I didn't post and get people to respond I would have never found that piece of wisdom.
 
Quote from TraderZones:

This is way oversimplified. There is no inherent advantage in writing/selling options. You take large risks for a fixed amount of money. And the idea of earning 5-7% of month overlook the high likelihood of occasional but sure blowouts along the way, defeating the purposes. And of course, there is your spreads, commissions, risk, errors, the value of your own time and other things that eat up this nice and cozy "5%-7% monthly."
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Another great viewpoint that I have learned and that I can now ponder.
 
Quote from TraderZones:

This is way oversimplified. There is no inherent advantage in writing/selling options. You take large risks for a fixed amount of money. And the idea of earning 5-7% of month overlook the high likelihood of occasional but sure blowouts along the way, defeating the purposes. And of course, there is your spreads, commissions, risk, errors, the value of your own time and other things that eat up this nice and cozy "5%-7% monthly."
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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%.
 
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%.
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Wouldn't you have to have a large amount of capital to even make it worthwhile? With buying options although riskier you wouldn't need as much capital to make substantial gains.
 
Quote from CandleStick77:

Wouldn't you have to have a large amount of capital to even make it worthwhile? With buying options although riskier you wouldn't need as much capital to make substantial gains.
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Yes, you are correct, but your probability of success is much lower. You risk lower amount, but in most cases, you will lose, in some cases you will lose your whole investment.

So your potential profit with buying options is higher, but the probability of success with selling options is much higher.
 
I am getting alot of good information here. I have another question maybe some of you can help me with. I am currently studying how news/earnings drives a stock. Now correct me if I am wrong but your supposed to make profit on the "rumor" and sell before the news actually hits right?


What are some examples of the different "types" of news that really drives a stock. This is all completely new to me. SEC filings? Earnings estimates? do analysts really have that much power over a stock by what they say? And if so which ones? Any other information you can give on the fundamental side of things would be awesome. Thanks!
 
Quote from vhehn:

http://www.elitetrader.com/vb/showthread.php?s=&postid=2682156#post2682156
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http://www.cxoadvisory.com/blog/external/blog4-23-09/

This article basically confirms my claims:

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%.

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.
 
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