Is Option Buying A Loser's Game?

Discussion in 'Options' started by tradingjournals, Jun 22, 2010.

  1. I know the argument that it is about IV, and that there is no side to pick to be a winner. But let us be practical here. Which side works for you? A seller or a buyer of premium.
  2. MTE


    For me, it depends on the situation. Besides, why does is always has to be buyer vs seller!? It's not like you pick a petrol or a diesel car and then have to stick with either petrol or diesel fuel without the possibility of changing.
  3. Carl K

    Carl K

    With option spread trading, you both buy and sell.
    Options provide the opportunity to control risk.

    Your question is like asking, is it better to buy or sell insurance.

  4. I'm of the opinion that all option-trades should spread long and short gamma. I am a net buyer of wings in terms of contracts, not notional.
  5. msecrist


    It depends on what kind of trader you are. Frankly, in this market, it's pretty tough to do well unless you happen to get lucky and have some long puts when one of the quick sell-offs happens. It happened to me and I have to admit it was pure luck. That said, I'd guess someone who is a decent technical trader could possible make money in either direction buying options (puts or calls).

    In my experience, spreads tend to be more forgiving and have more limited risk but also have a more limited up side. Many spreads (at least the ones I use) are premium selling strategies and tend to suit my personality a little better.

    That said, I think you have to take a look at all the factors, including your own trading style and personality before deciding what you want to trade. Paper trade them both for a while and see what works.

  6. sonoma


    Ditto here. Maybe a little variation in the interior, but excess long wingstrikes makes trading a catastrophe manageable if not profitable. Then you live to trade another day.
  7. livevol_ophir

    livevol_ophir ET Sponsor

  8. Blotto


    At least 70% of options expire worthless or close to worthless.

    Skilled traders can make profits in any instrument, however unskilled traders have more hurdles to overcome when buying options, and will ultimately lose.

    They are a tool, to be used correctly by professionals, and incorrectly by the public as with any other financial instrument.
  9. livevol_ophir

    livevol_ophir ET Sponsor

    For whatever it's worth guys, here on the floor if you like my sheets or most of the other guys, we're <b>generally</b> (broadly speaking here) short premium (and vega) and long # options.

    i.e. short 300 straddles, long 650 contracts. We aim to win to the likely event that options expire worthless, and try to protect or even win in the unlikely event of a huge move.

    We lose the most when the stock moves "biggish." Enough to kill our straddles but not enough to make the long options worth anything.

    Obviously it's specific stock by stock, but overall, this is kinda how the sheets look.
  10. clslaw


    If we believe the option pricing models there is no inherent benefit to buying an option versus selling an option. If there was, the edge afforded buying versus selling would be exploited until it was no longer present.

    Options are tools that allow you to model a desirable risk and reward position in the market. What really dictates whether you are going to experience long-term profitability or not has a lot more to do with your risk management than it does with being long or short the contracts.

    #10     Jun 23, 2010