Writing options for a living

Quote from murray t turtle:

Maybe right on ATM,riskarb, but they can turn into ITM quickly ;
have done better buying overall on ITM, so far.Maybe proves your point.
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It's not a point of maybe. Gamma decreases as it trades ITM. Yes, you made my point, but not for the reason you state. I wasn't making an issue of delta or marked-loss; I was making an issue of short gamma/vol. Sell a straddle if you want to trade into a declining gamma-position. In the majority of cases, the big money losses occured by selling stops in cheap gamma[OTM]. ATM gamma is expensive. It's all about the curvature. OTM options carry small-initial gammas, but their dgamma[leverage] is extraordinary.

OTM options are cheap... $prem and gamma/dgamma. Vol is often meaningless when referring to option under 10 deltas as the difference between the bidIV&askIV can exceed the vol-line at ThVal. Not as much of an issue in today's markets, but take a look at some deeps in Copper options sometime. BidIV 20% ... askIV 70%, ThVal at 45%. This was a quote a while ago from a buddy recalling the market he made for a customer who was trying to move 10lots in Cu options. Hilarious.

In answer to the original post in this thread. I know of two individuals who have earned > $5mil/year trading short gamma exclusively. Not to say that they never bought an option, but to be exclusively short gamma. Both were upstairs exchange members. "JS" would sell atm combos on Friday's opening rotation, buying them back on Monday's close or converting them to iron flys. "TS" would attempt to package his edge in coverting all positions in long flys by the EOD. If his book contained any extraneous exposure he'd offset at the close; the only overnight exposure consisted of long flys. "JS" is worth North of $30mil and retired before 40 in Aspen. TS still trades, and had a string of years > $7mil.

I am not advocating buying otm gamma as a strategy, but I'd certainly rather sell one atm at $10 then sell 10 otm at $1. When option deltas = stock you're in trouble with that 10lot.
 
I finally realized that there are two separate discussions going on here - there is a crowd of people like Mav and riskarb talking about advantages and disadvantages of short gamma/vega strategies, while a separate group of people does not really understand and keeps asking "so, do you sell or buy".
 
I finally realized that there are two separate discussions going on here - there is a crowd of people like Mav and riskarb talking about advantages and disadvantages of short gamma/vega strategies, while a separate group of people does not really understand and keeps asking "so, do you sell or buy".
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And there are those who know that theoretically no strategy is a winning one on the long run but who would like to know why, so that they have all the elements in hand before determining what type of trading might stick to their personnality/skills and enable them to have an edge.

Hence why I have been throwing in a few strategies to be challenged by the "option specialists". You always learn more through contradiction.

Here's another one : take a look at the history of a given index over several decades say. It tells you that the average frequency of a +/- 10% movement from one month to the next is 4 years.

Wait for the next 10% movement. Then start selling 10% OTM strangles every month. After 4 years stop trading that strategy.

Now I know that an average frequency doesn't mean that much with market conditions that keep changing over the years. The next big 10% move could occur the following month. Besides, a better measure would be to have have the max movement over any one-month period, so that you can determine the right leverage.

I know that in theory you will get broke on the long run trading this type of strategy (if you give it enough time) , but hell it's worth giving it a shot IMHO.
 
Quote from kalashnicac:
Wait for the next 10% movement. Then start selling 10% OTM strangles every month. After 4 years stop trading that strategy.
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Well, a large (i.e 10% move) is a pure curtosis play. Personally, I feel that i equity/index world ATM vol is overpriced more then OTM vol, especially on PUT side (mainly because of jumps). Now, if you are good at playing distributional games, you might try doing something about it. You might feel exactly the oppsite and preferr to sell the wings. But building your entire book purely on a being short naked options is a scary thought.
 
Well, a large (i.e 10% move) is a pure curtosis play. Personally, I feel that i equity/index world ATM vol is overpriced more then OTM vol, especially on PUT side (mainly because of jumps). Now, if you are good at playing distributional games, you might try doing something about it. You might feel exactly the oppsite and preferr to sell the wings. But building your entire book purely on a being short naked options is a scary thought.
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What makes you think that ATM vol is overpriced? Do you "feel" this or have you got some kind of statistical evidence?

In that case, are you suggesting a good strategy would be a short synthetic ATM straddle (short underlying & short 2 puts) with two wings?

Yes I quite like fly strategies (BTW I only paper trade, not enough money for the moment...), but I get the "feeling" they are a good strategy only if you adjust them as the underlying moves, and not just sit there fingers crossed.

My "curtosis" play is a sytem-type strategy, because it is based on backtest.
 
Anyone catch the small article in this weekend's edition of Barron's?

In the options column, the journalist is talking about a software engineer who has been selling naked puts for 15 years. Says he's got a $120,000 portfolio and has been averaging +25% a year!

Although the article doesn't explicitely say it, he is doing a covered call strategy, but I don't understand why he doesn't just go long the stock and short the calls (that way he can get dividends). Maybe the 3% interest income is a good enough substitute.

Anyway, check it out. It is a puff piece but it might be of interest to some.
 
if i knew of no other profitable strategies, i'd be trading only frontspreads on some instruments and would confidently say i'd be making money just about every year if vix remains below 35. to tell you how is beyond the scope of this thread. i think picking the right thing to short premium is also pretty important. some instruments have a very stable history and rarely experience any gaps. and even when they do, they are not that extreme. those are the ones you want to pick out and play with if you ever do decide to do this for a living.

and there's a huge misconception that once you put on a frontspread, you don't do anything else. well, that's probably the best way to lose money because risk management is the key to your survival. you have to constantly monitor your risk levels and play some defense when you have to. you can't just sit there, be stoned, and fold your arms the whole time unless the thing doesn't move an inch at all. to protect your premium, you're supposed to be constantly fixing your position and adjusting it to not let things get out of hand. that's why you want to choose some instrument that doesn't act like it's on 10 hits of acid but has a more stable character to make it easier to manage.
 
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