I propose to collect all " Income generating strategies" combined with "Risk free trades" and "Arbs" threads and move 'em into one master thread called "The Edge !". Thoughts
On some planets, perhaps. Cheap gamma refers to its curvature. The risk-reward is generally deplorable and rarely allows for delta or vega gains.
Andy the best info on the topic could be found on the SPX Credit Spread Trader thread that was linked earlier in the thread. Unfortunately that thread got way too long and too out of control, nonetheless all you seek is already in there. Having said that, i think you would do much better if you do away with the mentality that there are options strategies who generate income or that there is any edge in selling the greeks in any way, shape or form or buying them for that matter. Sorry for the bad news but what you seek does not exist. Anyone who tells you otherwise is selling something and should not be taken seriously. From your PM, i could gather that you may have misunderstood my comments. Gamma peaks ATM, so the farther out you go, the cheaper the gamma. I've never said that selling cheap gamma is a way to generate income. On the contrary, i have been very vocal in the past against the practice.
Selling cheap gamma is the best way to generate regular income up to the point where you think you are a good trader. Once that point is reached, you will then size up only to discover that your previous months gains were just borrowed at a steep cost. Trader then decimates account, size down , make regular $ again and then repeat the cycle. I , from personal experience, decided to cut off this cancer....
There is nothing wrong with selling cheap gamma. Just make sure you buy even cheaper gamma. Watch convexity if you try this. Rally informed me about this, not that I didn't know, but don't put that on the back burner and pray for mean reversion. Learned the hard way here.
Hang on... if I understand this correctly and you disregard the greeks, you are saying the only way to profit from options trading would be to correctly speculate spot @ expiry??!! A more aggressive line to this argument would be to say that the only way to profit from options would be to correctly speculate OTM spreads moving ITM and vice versa - since selling (buying) OTM (ITM) spreads, then buying (selling) the same spread while it is still OTM (ITM) at a later date is essentially collecting theta - "a rose by any other name would smell as sweet", and this is a commonplace example of trading the greeks. Using options to speculate spot @ expiry can be very profitable indeed, but to suggest that it is the ONLY way to profit from options trading is, quite frankly, ridiculous. Greeks are tradable commodities. And there is profit available in all things tradeable. Semantics aside, how else would you describe a gamma trade?
There is no point in opening the expectancy argument, and selling speed of delta doesn't require it. Simply put, you're underwriting all the good shit inherent in the contract. The only prudent time to sell otm gamma is into overwhelming index skew and/or a directional bet. In most cases, you're better off simply trading the underlying. I can't think or a single scenario in which it's prudent to trade >1:1 RR in short wings.
Yeah, now that I know what it means I see that I read your post from the "options mentoring" thread in the wrong context. I think I'll stick to my calendar spreads in the simulator until I really get the hang of it. I hate having to determine the direction of something and would prefer to keep things simple. One thing I can predict is that time will keep ticking 'til expiration so that might be my best angle to approach the options game from. I will take a look at the link posted to the other thread as credit spreading does sound very interesting. Thanks for all the replies.
There was a good post a few weeks ago stating that trading flat is indeed a direction. All are directions that a stock can take: Up Flat Down Most stocks either go up and/or down, and trading flat isn't all that common.
Unfortunately, there is no viable road to generating expectancy w/o making bets on direction or vols. Positive theta(ticking time as you put it) comes at a cost - gamma risk. My suggestion would be to work on your pattern recognition skills be it spot direction or vols and use that as a stepping stone for the use of strats/greeks. If you cant do that, no matter what strategy you use, you will likely fail. Good luck.