Because there are profits to be made - if you are willing to take the risk. Most of us insure the insurance we sell, thereby limiting losses. Mark
1) To limit losses, do not sell naked options. Whe you sell a put, but a cheaper put as protection. 2) If you trade iron condors or sell credit spreads, buy extra puts and/or calls for protection. 3) You can indeed have too much insurance. Give yourself room to earn a profit. Mark http://blog.mdwoptions.com/
2) Do you mean ratio spreads? would there be room for any credit though? I've read the article in your blog about iron condors earlier, interesting stuff. The question I have is: Do I need to look at the theoretical values of the options in a spread? Or I shouldn't worry too much about that, as any excess premium I pay would be more or less offset by the short option? Thanks! RandomZen
1) It's always a good idea to know the value of options you are trading. But because an iron condor is reasonably neutral to start, it's not essential. 2) the problem with insurance is that it eats up a good portion of the credit. That's why your comfort zone must be satisfies: Reasonable profit potential, reasonable risk. 3) Be very careful which options you buy when buying 'extras' If you have my book, there's a thorough description in Chapter 20. Mark
Mark, Nice post about your trading style. I mis-spoke when I posted that I am scared of risk... the proper phrase should have been "I am aware at all times of the risk" of any positions that I have on. Your almost exclusive use of Iron Condors as a trading vehicle was a surprise. But after thinking about it, I could probably adopt the same mindset. I've got 2 IC positions on for June, a RUT and an NDX. Both were traded using the same setups (same Deltas on the short options). The RUT has been much more stable than the NDX, so you are probably on target by choosing the RUT. Double Diagonals have always eluded my brains ability to be comfortable trading them. And the other strategies that I mentioned using are not as good as the IC. I will probably post more about this over the weekend. But right now I'm going out on the patio and enjoy the rest of the day. Best Regards, Mech
Think of DD as simultaneous IC plus two calendars, Advantage is positive vega and possibility for a good sized cash credit when closing. Big disadvantage is potential larger loss or paying a debit going in. Mark
You should be aware of premium values but you are correct in that if you are doing spreads, the excess you pay is pretty much offset by the excess you receive. That enables you to play with high IV options.