Registered: Aug 2011
07-15-12 03:30 AM
Quote from Gammahedge1:
I'm assuming you're non directional with this trade and you're trying to collect Theta? (if you're trying to be directional there are much better spreads to look at). If so there are four major issues I see with this strategy:
1) BAC is too small. Trade a larger vehicle like GS if you're into financials. You'll get killed on commissions selling shit premium.
2) You're WAY too far out in time. The Greeks aren't linear so the further out you are the less Theta you're going to get.
3) Price can sit right where it is but if the Vega gets sucked out of that long option you're going to get your face ripped off.
4) Throw Talebs book out and read one by a person who actually makes money trading options. Bittmans trading options as a professional is a great book for understanding how the Greeks interact with each other over time.
You can construct all kinds of great strategies using options but as soon as a new trader starts using longs, shorts AND stock simultaneously its a recipe for a blowout. And above all else stay SMALL no matter what you do.
i'm actually long term directional on the banks.. overly pessimistic the market is about them.. but i wanna accelerate the gains by overselling otm premium and hedging my gamma risk with buy stops possibly.. this is still all theoretical.. finding the right month to sell to where the premium is still good but the theta is starting to reallly burn the premium is probably the deal... bottom line on this trade is there is risk to ways.. BAC goes down for an extended period of time and the call sales don't neutralize the loss. or bac blasts up through my sold strikes before i have time to deal with gamma blow out.