When Selling Options, What Delta & Expiration Date Do YOU Like?

[Bum]

To quote Mike Tyson in one of his more lucid moments: Everybody's got a plan until they're wacked in the face.

Hence, the reason for my "cliff" comment.

 

[ironchef]

Assume for this question that Delta and Prob ITM are the same thing. I have been watching the educational courses at Option Alpha and (when selling/shorting) he sticks with a delta of around 0.3 giving him a 70% chance the options will expire worthless...and 25-45 days till expiration as that range has the highest theta impact on option pricing. Does that information sit well you you bad ass elite traders? Do you prefer something different?

thanks.

EDIT: Delta of .30 determines the anchoring strike of which you can build your spreads off of etc...

Don't short options. You'll live longer.

Unless OP is doing covered writes. Then OP's risk adjusted returns should be somewhat better than the underlying (e.g. BXM, PUT). However, I don't think OP is going to get any extra absolute returns compare to the underlying.

If OP writes naked, you are right.

And according to @Meverick74, if OP wants to write, the best is ATM because if the bet goes against OP, gamma softens the fall.

 

[traider]

Some have a well-defined strategy that works.
Most eventually fall off a cliff at some point but I've seen some with a good 10 year track record.

This program is doing pretty well......so far.

View attachment 209283

What is the name of this fund?

 

[marameo]

I assume one will tend to short options to capitalize on time decay and decreasing volatility as well. Why not trade strategies such as butterfly or (reverse) iron condor where net debit = max loss; the premium will increase (to a redemption value) as time goes by - and volatility goes down, if the underlying is in-the-range. "inline" warrants works this way.

 

[ET180]

Don't short options. You'll live longer.

Derivatives can be less risky than trading the underlying. Depends on how you use them.

 

[Baozi]

Unless OP is doing covered writes. Then OP's risk adjusted returns should be somewhat better than the underlying (e.g. BXM, PUT). However, I don't think OP is going to get any extra absolute returns compare to the underlying.

If OP writes naked, you are right.

And according to @Meverick74, if OP wants to write, the best is ATM because if the bet goes against OP, gamma softens the fall.

If you really have to short, always go for the straddle/narrow strangle where gamma is highest and you are paid for the risk you take, never for the wings.

If things go bad (and they will) at least you'll have more time to see the freight train coming.

 

[tommcginnis]

If you really have to short, always go for the straddle/narrow strangle where gamma is highest and you are paid for the risk you take, never for the wings.

If things go bad (and they will) at least you'll have more time to see the freight train coming.

While I appreciate what you're saying, , don't try to work an expectancy calculation on that -- it won't go well.

(Hence, working the wings: working the "edge" of smallness/adroitness to take advantageous positions before the market knows them to be advantageous. )

 

[Baozi]

While I appreciate what you're saying, , don't try to work an expectancy calculation on that -- it won't go well.

(Hence, working the wings: working the "edge" of smallness/adroitness to take advantageous positions before the market knows them to be advantageous. )

@tommcginnis haha you got me.. Been trying to do that for a while now, and I am starting to see some promising results.

So far, the best (naked) premium selling strategy seems to be a sort of asymmetric straddle (very similar to destriero's pitchforks), with the P/L curve adjusted so that it mimics the most likely distribution.

Again, I play on an index that got upside/downside capped (and historically never move more than 5% in a day) so probably this doesn't translate well to US markets.

 

[robertSt]

I no longer try to avoid having it go in the money by picking a strike below the current price. I sell near at the money strikes, that's where the most time value is. Then I adjust.

 

[Amahrix]

that's where the most time value is.

May I ask if you know that the P&L of an option is not from time decay?