Always consider, who's on the other side of your trade. They don't want to loss their hard earned money either. Money is transfered to the accounts of traders with knowledge, from accounts of traders that don't have as much knowledge. Learn or give your money to a worthy charity, so you know where it's going. Carl
1. How to get an edge then? 2. I believe there are more gullible people (and much more money) who buy options than there are gullible people who buy misinformation. 3. Interestingly, the seller of misinformation and the winning sellers of options have something in common: they get paid from gullible people. 4. DMO: do you get paid from selling options?
You made a good post, and I am focusing on the quote above. The other side on the short ITM call trade is a buyer of the call, or the buyer of a married put for the regular people. Under the hypothesis of zero edge on market direction (which I think is a sound hypothesis), it seems to me that the seller of the call may have an edge. Could someone explain why selling ITM calls is NOT an edge then?
Sure. ITM calls can be expensive (high IV) or cheap (low IV). To give an extreme example to illustrate, if you sold ITM calls at 500% IV, you would have an edge. If you sold ITM calls at 1% you would not have an edge. The buyer would. Everything has a "fair price." You have an edge when you sell over that fair price, or when you buy under the fair price. So to make a blanket statement that selling ITM calls gives you an edge - without any mention of the market circumstances at that moment or the price (IV) of those calls - is absurd. It's like at the beginning of every football season saying "You want an edge? Bet on the Colts to win the super bowl" - with no regard for how good a team the Colts have that year or what odds you can get. You cannot get an edge by blindly doing the same trade repeatedly. You get an edge by working really frickin' hard and doing a LOT of intelligent analysis and maybe, just maybe, you'll come across something that is widely misunderstood and therefore mispriced. And by having the cojones to ignore the fact that everyone thinks you're nuts and suicidal to do the trade.
I already understand what you wrote about IV. IV (the one buyer and seller are betting on) can be cheap in one trade, high in another trade. But overall, neither the buyer nor the seller has an edge on IV (as otherwise the market will not be a market). Therefore, neither the average buyer nor the average seller has an edge on IV (similar to the direction, except that in this case it is the direction of IV that buyers and sellers are betting on). The above does not disprove that selling ITM is not an edge. I looked at the numbers, and I am inclined to say that the sellers may have edge. NOTE: we are NOT discussing a single stock but rather the overall market. Think SPY, IWM, QQQQ, etc.
So many want to believe that there is some simple formula that will give them an edge and can be repeated mindlessly. Good luck with that.
You ask for people to be open minded, and you forgot yourself? Tell me: how does the buyer of the put gets his premium from the underlier just to break even? I assume your answer would be something like "the return he would get from the underlier". Could you expand on it a bit more or offer a different answer? I am increasingly thinking that our friend the buyer is taken for a ride in the case of ITM call, particularly the posts did not give an answer so far, and unexpectedly resorted to "shut up, there is nothing to discuss here" type of answer.