Quote from nazzdack:
Since I "short" about 80% of the time AND go "long" the other 20%, that means I win all of the time!
Not if your shorts are long puts...
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Whether an options writer or buyer has better edge? Why?
- Thread starter OddTrader
- Start date
Not if your shorts are long puts...
Each strategy has its own advantages and disadvantages.Quote from OddTrader:
Do you think whether an options writer or buyer has better edge in the market?
What are the main reasons or conditions, and why?
The question you should answer is, would you rather have time decay working for you or against you.
If there's a "so-called edge" to one vs the other, that's probably the issue to consider.
Putz Master
Quote from Scataphagos:
Isn't there a large body of work which suggests "Option Sellers win 80% of the time, Option Buyers win only 20%?"
Don't think so.
There is the constant, but erroneous, statement that 80% of options expire worthless.
But that statement is intentionally misleading. It refers only to those options still outstanding at expiration, when in reality, a huge portion of ITM options are sold and cease to exist by the time expiration arrives.
Mark
There is a lot of discussion about this by the option greats of ET, including Mav74, riskarb, etc. in the archives. Good lengthy discussions about it, try the search button! If you have time to read, the classic "SPX Credit Spread Trader" thread has a good roundup of the question, somewhere within the first year and a half of the thread I believe.
There is no inherent edge in writing. I think that's the basic answer. Although you'll hear time and time again the statement "majority of options expire worthless."
Ansbacher does it, and I recall there's a fund run by an Asian gentlemen (I think the fund is called AIM or some acronym starting with A) that write consistently.
In another thread, someone summarized writing (far OTM) like this:
You'll get monthly returns of +5k, +5k, +5k, +5k, +5k, +5k, +5k, +5k,+5k, +5k, and then wammo, -55k one month.
If writing far OTM, as long as you avoid the Black Swan, you're fine. As long as you avoid the Black Swan....but who can?
But yeah, no inherent edge in writing, debit=credit, etc. etc. is the answer you will find. I guess it just depends on what side of the accounting book you want to be on? lol.
There is no inherent edge in writing. I think that's the basic answer. Although you'll hear time and time again the statement "majority of options expire worthless."
Ansbacher does it, and I recall there's a fund run by an Asian gentlemen (I think the fund is called AIM or some acronym starting with A) that write consistently.
In another thread, someone summarized writing (far OTM) like this:
You'll get monthly returns of +5k, +5k, +5k, +5k, +5k, +5k, +5k, +5k,+5k, +5k, and then wammo, -55k one month.
If writing far OTM, as long as you avoid the Black Swan, you're fine. As long as you avoid the Black Swan....but who can?
But yeah, no inherent edge in writing, debit=credit, etc. etc. is the answer you will find. I guess it just depends on what side of the accounting book you want to be on? lol.
Quote from Putz Master:
Each strategy has its own advantages and disadvantages.
The question you should answer is, would you rather have time decay working for you or against you.
If there's an "edge" to one vs the other, that's probably it.
Putz Master
The question has nothing at all to do with time decay, it was strictly a questions about edge. There is no inherent edge in buying or shorting options.
Quote from dagnyt:
Don't think so.
There is the constant, but erroneous, statement that 80% of options expire worthless.
But that statement is intentionally misleading. It refers only to those options still outstanding at expiration, when in reality, a huge portion of ITM options are sold and cease to exist by the time expiration arrives.
Mark
Writing options is like creating counterfeit stocks out of thin air. The option there-after exists, but if the original writer buys it back the option is then neutralised. And net neutral like the futures.
Therefore I agree with your statement. Do you have an options blog?
Quote from dagnyt:
There is the constant, but erroneous, statement that 80% of options expire worthless.
Even if it were true, it would mean nothing. There's also the matter of how much you make on your winners vs how much you lose on your losers.
If you make money 4 times out of 5 - but that 5th time you lose ten times what you made the other 4 times - you'd still be a loser.
Quote from college_trad3r:
Writing options is like creating counterfeit stocks out of thin air. The option there-after exists, but if the original writer buys it back the option is then neutralised. And net neutral like the futures.
Therefore I agree with your statement. Do you have an options blog?
Writing an option is nothing at all like creating a counterfeit stock. Not only that the writer does not have to be the initiator of a trade, further even if the sell side of an initial trade closes his side out the buy side of that trade can remain open, there is no neutralization of any side or contract.
The original question was about any âedgeâ either side has and the definitive answer is NO, there is no inherent edge in buying or writing options.
Quote from dmo:
Even if it were true, it would mean nothing. There's also the matter of how much you make on your winners vs how much you lose on your losers.
If you make money 4 times out of 5 - but that 5th time you lose ten times what you made the other 4 times - you'd still be a loser.
Thats a great point and one which is lost on so many ET'ers. I can think of one person in particular who posts very often about how he takes in tiny amounts of time premium with a fair degree of consistancy. He forgot all about how he got whalloped last year and gave back all the premiums he collected in the years leading up to 2008 and a whole lot more.
I think I have found a way that beats even the best hedge funds over time.
Yes, you must avoid the black swan. Just because you do not know of anyone with an inherent edge doesn't mean that none exists.
Write the options and keep a rein on drawdown. The compounded monthly return will eventually overtake and exceed the market.
Interestingly, do a search on the net and NO site can truly show it has done this over multi-year periods.
Perpetuate this for years and you've got winner.
This other gent you mention has about a 20% APR - aside from the one anomaly. Just the fact that the one was so beyond the rest - raises doubt on management.
Also the out-dated copyrights of the documents makes one leary, too. Ultimately even this achievement is/may be a "failed" (can't perpetuate) venture.
Pay$
Yes, you must avoid the black swan. Just because you do not know of anyone with an inherent edge doesn't mean that none exists.
Write the options and keep a rein on drawdown. The compounded monthly return will eventually overtake and exceed the market.
Interestingly, do a search on the net and NO site can truly show it has done this over multi-year periods.
Perpetuate this for years and you've got winner.
This other gent you mention has about a 20% APR - aside from the one anomaly. Just the fact that the one was so beyond the rest - raises doubt on management.
Also the out-dated copyrights of the documents makes one leary, too. Ultimately even this achievement is/may be a "failed" (can't perpetuate) venture.
Pay$