To understand relative value, to know gamma is cheap require profound knowledge of the option market and option pricing. Where can I learn how to acquire those knowledge? I scanned Coursera and MOOC but couldn't find anything useful on option pricing and strategy.
This game has asymmetric payout so I expect in a bull market I should get a higher payout than buy and hold the underlying? But on second thought, you are probably right, the market is efficient so will account for the bull run and I would be lucky to match buy and hold in the long run.
The 10 year average yearly return on the Vanguard S&P 500 index (ticker: VFINX) is 12.97% as of 12/31/18. It's closer to 8% for 15 years, which includes the market crash years of 2008 & 2009. It's a lot less work than trading and safer.
And the shit are the drawdowns. Even profitable systems have losing periods. One needs to do research, through backtesting, to have an idea of how often they occur, how deep they are and how long they last. You can also see if you can think of ways of reducing drawdowns, such as determining the conditions where it would be wise to temporarily stop trading. And the most difficult part of drawdowns is dealing with them mentally. You need the confidence that your system is going through a normal losing run and is not broken.
OMG!!! You sold strangles on CL??!! You are so brave. Strangles is so dangerous that you lose one way or another literally. Strangles only work when the underlying is extremely stable with no volatility but then you won't get the premiums you will just end up donating money to the broker. There only very rarely that selling strangles work due to a drastic reduction of volatility. I've only sold 2 strangles in my life, both during earnings. One of them was on NVDA, at that time everybody was expecting major earnings beat with stellar guidance so IV was totally hyped up and I sold into the IV but it turns out it was just an average beat and the guidance was just ok and the stock didn't move much luckily for me. Come to think of it, it was quite scary. The stock could've gone just like the expectation and I would've been totally screwed. I never sold strangles ever again.
Been lurking on ET for months, this thread is the best I've seen the whole time, good enough to make me actually create an account here. Something I'm curious about--with everyone talking about how commissions/assignment risks destroy potential profits on small trades, does no one feel like the commissions-free aspect of Robinhood makes such strategies more viable? Case in point, I sell weekly covered calls and naked puts for pennies on high-vol, low mark underlyings in great quantity because I pay exactly zero dollars and zero cents for each transaction. This has worked out very well, mostly because getting assigned is the best possible outcome, and in the case of the the underlying crashing, I can just buy more of the underlying and sell more calls (i.e., GE from October-December) without getting nickel & dimed to death. Yes, I know Robinhood trades against its own investors and sells orders to MMs and that's sleazy. My general thought, though, is that because of the platform (no commissions), a vast majority of the accounts on RH are owned and operated by true n00bz, and this is how RH butters its bread. So, in the words of nooby, is this bullshit/am I missing something? P.S. I almost never buy/sell spreads anymore. Too easy to get crushed by tail risk. Only exception is I'll buy the occasional >1SD Double Diagonal across earnings on a super-low IV equity if the prices look good and cash it out the moment the front-end expires (did this on NKE in November on December>>January options and it worked out). Good to meet you all!
I'm confused..You sell naked puts for pennies in great quantity and feel getting assigned or having the stock crater is the best possible outcome??The reason being you can "buy more stock'or sell calls against your long position??? How exactly do you stay in business under these scenarios?? And wouldn't trading spreads from the short side somewhat mitigate tail risk??
Commissions charged by broker and exchange should be low in comparison with the spread you are paying. For example, if the quote is 0.03 to 0.04, you just lost a huge amount of edge when you trade. You are assuming GE will not go bankrupt but there is no way that you can know it.