Writing options for a living

[riskarb]

Quote from ktrader:

So Mav or Risk what is your answer to the original post that started this thread.

Can you make a living selling options?

Well... most enter into short vol believing it's a low-risk strategy. They invert delta to infer expectancy[psychosis] and then go f*cking nuts selling premium.

The reason ppl blow-out is not typically due to vega... gamma is usually the killer. Reduced, it's simply an issue of scale. DO NOT sell 100 calls if you're only willing to absorb the risk on 1k shares.

They love to sell those otm puts and calls where the gamma is cheap and has nowhere to go on the curve but UP[dgamma/x].

Now I only sell naked gamma small, primarily in short straddles holding some small delta position -- i.e., looking to short CME small by selling short-delta combos. I wouldn't recommend anyone sell naked gamma. Buy cheap flys... no better position on Earth; long upside gamma/ short downside gamma[slope, not direction].

 

[Maverick74]

Quote from ktrader:

Mav...my question was more direct to you. You seem to have a good understanding options and must trade them for a living.

Overtime have you been a net seller or net buyer of premium?

The answer is much more complicated then that. The point I was trying to make in this thread was that there is no difference between buying an option and selling an option of the same strike.

Now the grey area has to do with one's personality and what they feel comfortable doing. Some people are better long gamma traders. Some people are better short gamma traders. There are very distinct psychological differences between the two. That discussion extends beyond mathematics and theoretical edge.

My personal preference is irrelevant because it's based on what I feel comfortable doing. Over time, I have probably bought as many options as I have sold. When you learn to trade, you need to get out of these boxes we put ourselves in like being bullish or bearish or saying that you just buy options or just sell options. Hopefully you put on trades that make sense and have meaning behind them. And hopefully they have an attractive risk to reward structure or will at some point during the trade.

 

[sle]

Quote from ktrader:
Overtime have you been a net seller or net buyer of premium?

Stupid question - if you are doing trades premium-neutral, are you a net buyer or a net seller?

In rates-gamma world (board/merk + OTC treasuries and MBS options), I'd say up untill recently most desks were net buyers of gamma. Mortgage services sometimes throw out enormous amounts of gamma and you can find yourself in a position where you are both long gamma and long theta. My boss (a trader with some 20 years experience) is allways long gamma on the call/reciever side and short gamma on the put/payers side.

 

[nlslax]

Quote from vulture:

Like anything else, they are a weapon in the hands of someone who has talent and a time bomb in the hands of someone who gets lax or underestimates the inherent difficulties of implementing strategies in ever changing market conditions and volatilities. [/B]

Well said.

 

[range]

To the options gurus,

Later this summer, I want to buy puts to take advantage of a possible downturn this Fall. I would normally simply buy index puts. Rather than simply buying puts, is there a better way of playing a downturn (5-10% during Sept-Oct) that would give up some return and reduce risk a lot?

 

[smilingsynic]

Range said

"Later this summer, I want to buy puts to take advantage of a possible downturn this Fall. I would normally simply buy index puts. Rather than simply buying puts, is there a better way of playing a downturn (5-10% during Sept-Oct) that would give up some return and reduce risk a lot?"

I am no guru, and I would be skeptical about anyone who claims that he is, but I can recommend one approach that has worked before for me: buy synthetic straddles using not SPX cash options or ES futures options, but rather the new options on Spiders (SPY).

One approach: buy slightly OTM spy puts (30-40 delta right now, like the Oct 123s) and buy around 100 shares of spy for every three contracts. If the market does go down 5-10%, the puts will go itm, and you'l profit on the puts. You will lose on the long spy shares, but not as much as the gain on the puts. If the market goes up, the options will turn to dust, but you will have the profits from the etfs to help ease the pain. Plus, straddles (wheher sythetic or call/put) are long vega. If the market tanks, you can bet the VIX will increase with it.

One warning: Once the puts go itm, they tend to lose their premium. Even LEAPS.

 

[dottom]

Quote from range:

To the options gurus,

Later this summer, I want to buy puts to take advantage of a possible downturn this Fall. I would normally simply buy index puts. Rather than simply buying puts, is there a better way of playing a downturn (5-10% during Sept-Oct) that would give up some return and reduce risk a lot?

Long put spread. This is a directional bet, of course, and won't cost as much as naked put.

 

[Walther]

Quote from range:

To the options gurus,

Later this summer, I want to buy puts to take advantage of a possible downturn this Fall. I would normally simply buy index puts. Rather than simply buying puts, is there a better way of playing a downturn (5-10% during Sept-Oct) that would give up some return and reduce risk a lot?

You might be right. To time your entry, ask for time/sales figures for your puts and monitor how premium reacts to the price movement. Best is to buy puts on run up of course, when you feel the top is in.

 

[GTG]

In one sense, the decision of whether to buy or sell premium can be thought of like this: "How do you prefer to take your losses?". If you like to lose your money all at once going broke in a "big bang", then sell premium. If you would rather go broke slowly, bleeding a little bit every day then buy premium.

 

[chiguy]

Quote from range:

To the options gurus,

Later this summer, I want to buy puts to take advantage of a possible downturn this Fall. I would normally simply buy index puts. Rather than simply buying puts, is there a better way of playing a downturn (5-10% during Sept-Oct) that would give up some return and reduce risk a lot?

if you can't mind giving up your upside buy a "short" collar...

buy otm put / sell otm call....for about even money...

you get a little wiggle room to the upside but pretty good bang for your buck on the way down...

or sell it all and live in the woods until after armageddon....