Sammy and Riskarb, Thanks for your detailed feedback. Gives me some food for thought. First month is the one of choice, I hear... Not a surprise, I guess, it is also the source of a large portion of my profits - just because the interest to trade it is higher and the traps more straight forward to see. I hedge by 1) trading the underlying to eliminate the delta exposure (because in a low volatility market it dwarfs the exposure to all other things) 2) trading options of the same fund to spread strike, total gamma, upside or downside exposure 3) trading options in similar funds to squeeze cash out of skew inbalances (like, 15% - 20% down strikes bid up in one fund and offered down in another) But good old gambling isn't to be looked down upon. Ppl like me have little risk, but don't make so much money either. Or rather they do, but then they have to do everything in big size and the risk of it all takes the allure of a gamble.
Hi Riskarb /Sabotage Thanks for shedding some light on the strategies employed by you.You guessed it-Iam going thro the option stragies book to imagine your standard trade & how you will fiddle with it(re adjust) as the market moves! When you trade the underlying,Do you have to sell short also to keep your hedge intact? Do you hold Short equity overnight? When you bid/offer in the far out Options contracts,If hit-Does it consume too much margin? Thanks
Hi Fully Articulate! I entered the world of Equity Options in mid 1998 when I read a book on Covered call & How I can make 2-3% /month like income! Atleast you are smart enough to write covered call on a big cap stock like MO.(Not that it can not tank on a new adverse verdict in a court case filed by the anti smoking lobby!) Everything went well some what for a few months till the stock I wrote CC collapsed from 20 to 12!!( Those days front month ATM option on a $20 stock was $1) From that day like a cat with a hot milk story,I bet only on ATM/OTM options ( No more night marish Analyst down grade ,Missed Street Expectations,Lowered guidance etc) Maximum loss is already known & paid upfront. Got addicted to this slot machine as once in a while I hit big when 10-15 positions yield 2 to 3 times pay out (when the market turns as predicted) Guess Smart people like you are Selling premium !Just joking. Iam sure a conservative CC strategy on Blue chip stocks will give you regular monthly income.