Quote from ryanpatrick:
Well that's 420%, but I'm cautious because strting amount was only $1700-$1800.....Can it be done with something in the range of $20000 account? $50000 account? Maybe I could still get the wins in play, but I don't know how risking $5000 per trade will affect options. If you think about $5000/$200 per contract gives me 25 contracts and it works if I'm in those higher volume options, but I've also been in some where after earnings those market makers will make you work for your selling price especially when volume is 0 and spread is $0.30-$0.40 for ex. $3.00/$3.40 as the spread. You can't just put a limit in $3.10-$3.15 and expect to get all 25 contracts out, I'm going to have to tweak things a little and maybe stick to high volume options where the spread is under $0.10.
I can tell you a few drawbacks :
1. Putting a substantial amount into near month options
on directional plays is susceptable to "black swan" type
events, and they don't have to be huge to wipe you out.
One of my worst trading days was when a new
virus scare came out on a Sunday.
2. If you unconsciously increase your risk ( via more size or
more volatile plays ), you can lose track of the fact the risk
on these trades is already huge. Your musings about AAPL
puts are a good example.
3. You've touched on marketmaker issues, yes they are real
sometimes you may want to exit a position and they'll
arbitrarily drop the prices knowing you want out.
4. The current market is IDEAL for your strategy. At other times,
there are NO good plays for months at a time, and boredom
could make you lose money. I'm not talking about steady
market drops. Much more dangerous to your strategy are
flat, choppy markets without clear direction.
5. Something I observed but I'm not sure about. Buying Puts
in anticipation of market drops seems to be extremely
difficult to time. I was almost always a month early on
these plays when I tried them.
6. Hedging strategies often don't work.
You seem to have some interest and ability in this area, but sometimes this isn't enough to be successful. One of the most important aspects is cash reserves.