gtg, how do you lose your money in a big bang by selling premium? A bit of info: My question is coming from the perspective of someone who only sells naked puts and covered calls. When my naked puts go against me and get exercised, I've already pre-determined before I entered the trade that the underlying is a company I'd like to own at this price.
Writing options for a living
- Thread starter torontoman
- Start date
Ok, and how about trading credit spreads?
I wasn't commenting on your specific strategy or risk-management. My point is that most traders lose money. Whether you are a buyer or seller of premium, if you have no edge (positive expectancy), the only difference will be whether you lose your money quickly or slowly. Credit spreads are no different. Losses may be limited but there is still the asymetric risk/reward of selling a naked option (notice I wrote risk/reward not expectancy).
Hey Range.
Since you said "Sep-Oct, up to 10% downside and reduce risk a lot", here is one alternative. (You could get 20 better strategies than this one).
1. Buy the SPX October 1205 - 1100 put spread for $11.50. Why sell the 1100 put? 1100 is 11.25% lower than current level. Why Oct? You don't want Sep, there is no Nov, Dec too expensive & less sensitive to Oct price movement. SPX European so no worry about early assignment.
2. Sell the SPX Oct 1275 - 1300 call spread for $6.80. 1275 is over 2 1/2% o-t-m, some room for you if wrong.
Total cost about $5. Potential gain about $100.
Chiguy had good strategy, but selling naked index call might not fall into the reduced risk category, margin very high and smaller account might not get approval to do that. Lots of ways to tweak - buy Oct put & sell Aug put, then Sep put, etc.
Good luck
KNY 3
Since you said "Sep-Oct, up to 10% downside and reduce risk a lot", here is one alternative. (You could get 20 better strategies than this one).
1. Buy the SPX October 1205 - 1100 put spread for $11.50. Why sell the 1100 put? 1100 is 11.25% lower than current level. Why Oct? You don't want Sep, there is no Nov, Dec too expensive & less sensitive to Oct price movement. SPX European so no worry about early assignment.
2. Sell the SPX Oct 1275 - 1300 call spread for $6.80. 1275 is over 2 1/2% o-t-m, some room for you if wrong.
Total cost about $5. Potential gain about $100.
Chiguy had good strategy, but selling naked index call might not fall into the reduced risk category, margin very high and smaller account might not get approval to do that. Lots of ways to tweak - buy Oct put & sell Aug put, then Sep put, etc.
Good luck
KNY 3
writing options is a process that requires a lot of patience and discipline.
you're basically building a wall one brick at a time. you're certainly not going to build it overnight. some weeks go by, and things could go very smoothly. there are some 3-day weekends that you don't even have to put in any work, and the wall still builds itself. but sometimes there might be some strong winds that come out of nowhere and knock a few bricks down. when that happens, you can't stand there, fold your arms, and be lazy. you have to sweat it out a little, rework your wall, and repair the holes to prevent any further damage. if you don't, then you're risking the possiblity that more bricks could fall, and the number of bricks falling could add up quickly in a storm. if it's 5 bricks falling today, it could be 10 bricks falling tomorrow, or 15 bricks at once the day after that... you can't allow that to happen.
that's why you have to be disciplined. it's also important that you should be keen as to where to build your wall in the first place. some environments have very chaotic weather that could arrive frequently to ruin your wall. but some places are pretty stable and are less unpredictable. it might take you a little longer to build your wall in the more stable environments, but you should have an easier time because you won't have to deal with that many surprises throughout the year, or even the decade, so your wall could very well end up pretty strong and grand by the end of that time if you've picked a good place to build and have been disciplined/dedicated with your work every morning.
you're basically building a wall one brick at a time. you're certainly not going to build it overnight. some weeks go by, and things could go very smoothly. there are some 3-day weekends that you don't even have to put in any work, and the wall still builds itself. but sometimes there might be some strong winds that come out of nowhere and knock a few bricks down. when that happens, you can't stand there, fold your arms, and be lazy. you have to sweat it out a little, rework your wall, and repair the holes to prevent any further damage. if you don't, then you're risking the possiblity that more bricks could fall, and the number of bricks falling could add up quickly in a storm. if it's 5 bricks falling today, it could be 10 bricks falling tomorrow, or 15 bricks at once the day after that... you can't allow that to happen.
that's why you have to be disciplined. it's also important that you should be keen as to where to build your wall in the first place. some environments have very chaotic weather that could arrive frequently to ruin your wall. but some places are pretty stable and are less unpredictable. it might take you a little longer to build your wall in the more stable environments, but you should have an easier time because you won't have to deal with that many surprises throughout the year, or even the decade, so your wall could very well end up pretty strong and grand by the end of that time if you've picked a good place to build and have been disciplined/dedicated with your work every morning.
Yes in theory expectancy should be the same for any kind of strategy, assuming the options are priced correctly.
But I've always wondered : doesn't using the mean-reversing tendancy of implied voltility give an edge though? Say you trade condors, buying them when IV is low and selling them when IV is high.
Now I know IV can still move against you if you do that type of trading (besides, deciding where the mean is a bet in itself) and you can get your timing wrong, but still it sounds like a good strategy to me. What do you reckon?