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Writing options for a living
- Thread starter torontoman
- Start date
Quote from riskarb:
Whhhhaaaaaaattt? You haven't the faintest clue what you're blabbering about.
Like I said !
Do not let this simple strategy pass by ...
Many traders (especially the ones with too much experience) like to skip over the simple strategies too often because they believe it can't be this simple and they are half right.
Find a reliable probability bias for continued direction and just stay consistant in the trades and you will do fine over time.
There is obviously more to it then this but the most difficult part is always finding a reliable bias, the rest is simple.
I have beaten this agruement up earlier and I respect that some options traders like to THINK that directional bias's do not matter and I strongly disagree so we will just have to agree to disagree.
A collar is a 3-way position consisting of stock, call and put. You're "collaring" or "fencing" a stock position. A risk reversal consists of only the call and put. You can go long or short the risk reversal. Let's try to use correct terminology. The edge to the position is short into the skew, if one exists.
Directional bias doesn't matter? I don't know who stating that...
Directional bias doesn't matter? I don't know who stating that...
Can this be done? Has anyone tried it? Any comments?
To answer the original question.
Yes writing OTM options can be used to make a living. One just needs to find sufficient pricing disparity or volatiliy skew to overcome the inherent edge that Market Makers, Specialists and/or Floor Traders enjoy. That is why OTM is key since the skew is magnified at the tails of the pricing distribution.
Negative expectancy is just an assumption in options writing. It may be true or it may not be.
But more often than not, it's been a very false assumption in the past few years. Anyone writing options and making money during this same period should know how dumb the statement is if they regard it as a fixed rule. Expectancy changes in any period, and inefficeincy is everywhere. Most of the money-losing traders of the past few years were long premium in options. They lost a lot, especially if they traded delta-neutral.
As low as volatility has been, the premium has still been greater than the actual. That's positive expectancy and proft potential over there if you play your cards right.
But you can believe in rigid ideas like "writing options is always negative expectancy" and continue to give us your money if you want. lol
But more often than not, it's been a very false assumption in the past few years. Anyone writing options and making money during this same period should know how dumb the statement is if they regard it as a fixed rule. Expectancy changes in any period, and inefficeincy is everywhere. Most of the money-losing traders of the past few years were long premium in options. They lost a lot, especially if they traded delta-neutral.
As low as volatility has been, the premium has still been greater than the actual. That's positive expectancy and proft potential over there if you play your cards right.
But you can believe in rigid ideas like "writing options is always negative expectancy" and continue to give us your money if you want. lol
Quote from Walther:
One can make about 40% on average per year. You need
1/ Liquid market
2/ Premium worth of the risk
3/Stops in place (works only in liquid market)
4/Must know a decent reversal timing method.
Good luck
As usual, Walther has his head so far up his ass, that one cannot determine if he will come up for air.
First, the idea that one can make a specific profit (on average?) is bullshit. Profit selling premium depends on IV and supply/demand. Simple
Liquidity is important (he got one right)
Premium worth the risk (two correct)
Stops in place (WRONG) Unfortunately our expert fails to understand that the options market gaps through stops all the time. Also, the price of an option can change without a single transaction taking place. Everyone should have this experience once in thier lives.
Reversal Timing? Again this is pure crap. There are ways to protect your position. It is called hedging or offsets. PM me and I will tell you how to go about learning how. By the way, you will need to buy a book. The info is available in the public domain and it will take you a couple of weeks to read it and determine if it is right for you.
Great advice Walther, you keep trying to convince people that you know what you are talking about, when in fact only about 50% of your comments are accurate. Give us a break here.
Walther what I object to are your ego games. If you want to be thought of as some kind of expert, do the homework so you can qualify as one. Given your expert advice, people would get hurt. Instead of trying to bullshit people, try giving this a little thought up front first. There is a little more to this than ordering a pizza.
Steve
Quote from Randek:
As low as volatility has been, the premium has still been greater than the actual. That's positive expectancy and proft potential over there if you play your cards right.
That is not positive expectancy, for the fact that actual vol was lower than implied vol was apparent only after the fact.