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TskTsk
Registered: Dec 2011
Posts: 343 |
02-09-12 07:48 PM
I hear this constantly, how people claim shorting options are better than going long because theta gives you an extra edge, and that most options expire worthless etc, so you're better off being short than long. Any truth to this? Considering some efficiency, you'd think the markets would counteract this edge making sure no advantages are had by going short. Or am I wrong in this?
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cfelicio
Registered: Sep 2008
Posts: 39 |
02-09-12 07:53 PM
most of the time you will make small profits, and then you will have a big loss. if you are underleveraged, and shorting puts for stocks you want to own (for the long run), then it's not a problem (but you might have long periods of underperformance).
If you are doing it just to "collect" the premium, using a lot of leverage, eventually you might blow up 
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TskTsk
Registered: Dec 2011
Posts: 343 |
02-09-12 08:01 PM
Quote from cfelicio:
If you are doing it just to "collect" the premium, using a lot of leverage, eventually you might blow up [/B]
I am usually naked short, haven't blown up yet. Everytime I pray to god it wont blow up and it seems to be working so far.
Quote from MTE:
There is no edge in selling options vs buying them.
Yes thats what I'm thinking too, but I just cant ignore all the people claiming there is. Would love some more in depth response if anyone has
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nazzdack
Registered: Jul 2004
Posts: 8413 |
02-09-12 08:08 PM
Quote from TskTsk:
----shorting options are better than going long because....
----Any truth to this?
---- Considering....
----am I wrong in this?
1) "It" can work better when the VIX is downtrending.
2) "It" can work better with shorter-dated options instead of longer-dateds.
3) To use a sports metaphor, you'll move the ball slowly but get knocked back a lot on a QB sack.
4) The decay can be slower than expected during the week when the market is open but enormous over the weekend when markets are closed with the possibility of a market-moving event occuring, i.e. war, credit downgrades, rioting et al.
5) Try "it" during expiration week with Google's pending earnings announcements. 
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Martinghoul
Registered: Jan 2009
Posts: 5641 |
02-09-12 08:15 PM
Quote from TskTsk:
I hear this constantly, how people claim shorting options are better than going long because theta gives you an extra edge, and that most options expire worthless etc, so you're better off being short than long. Any truth to this? Considering some efficiency, you'd think the markets would counteract this edge making sure no advantages are had by going short. Or am I wrong in this?
It's edge, if you know what you're doing and you don't mark-to-mkt (insurance co's are profitable for a reason). Otherwise, it ain't. I think I have said this a few times before.
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