What is this option selling hedge fund's edge??

[Elitist Trader]

Quote from J-Law:

Elitist trader....(if ur not joking and are serious)not possible with options & even a rough business to be in even in stock or futures w/ access to orderflow.
You end up being the buyer in sell offs & in rallies watch your long inventory get gobbled up as everyone lifts your offer. All over a spread a few cents wide.
Not fun.

Any MM in options will tell you options trade all over the place & infrequent at different strikes and the MM at the end of the day usually has a inventory akin to "Sanford & Son" of calls & puts at all different strikes & expirations were nothing is or even (no clear position) that just ends up pointing directionally, delta, gamma, & theta in different directions. Rare to buy the bid, sell the offer all day long in a particular option. Passarelli even puts a page or two in his text on this. If the membership of various exchanges choke on it (specialist firms on NYSE out of biz) guys at the screen on IB or whatever .....well....

Never as easy as it seems. But, it would be nice.

Nope wasnt joking, just never had much exp. with options. Always thought it might be something I could try out one day.

I am in the business of doing this on futures, and you are right about being the buyer in selloffs and vise versa... But the edge is 3 things
1. Knowing when to do it and when not to do it
2. Knowing which market to do it on at a partiular time
3. Correct risk management (escape plans and positon sizing!)

I would have been wiped out long ago if I hadnt of got these 3 things right.

Maybe this hedge fund has the same edges as me...

 

[sle]

It's pretty easy to prove to yourself that index options are systematically overpriced, any historical simulation would show that. The real question is when (does the strategy actually lock-in additional volatility edge) and what (is the strike sold provides you good risk/return ratio). Personally, I never get the whole idea of selling naked options and would much rather sell short-dated straddles/strangles and delta hedge.

 

[viruscore1]

Is there any option writing HF out there that does not use a kamikaze strategy?

Toronto TSE has ZWA and ZWB ETF, ZWA - hedge Can/US $ and cover call on S&P. ZWB is Canadian bank ETF. Both pay monthly dividend and allows DRIP.

 

[viruscore1]

Toronto TSE has ZWA and ZWB ETF, ZWA - hedge Can/US $ and cover call on S&P. ZWB is Canadian bank ETF. Both pay monthly dividend and allows DRIP.

To bad they don't acquire stock by short OTM puts and see if stock price drop to strike for assignment.