You are providing a service, taking risk from someone who does not want it or is hedging. You are running a business, a service business.
I do not consider options trading to be investing. I consider it to be speculative. All options are a "fixed vs floating" bet. Floating is your gamma, fixed is your theta. And vega is the present value of the expectations of that bet. And it is a bet. A business provides a product or service for which a customer pays a fee. A market maker would be a business. His fee is the bid/offer spread. Calling your own retail trading a business is like me calling my wife the CEO of our house. (that was not a pleasant day).
1. Statistically speaking it is not. Time works in your favour.... 2. If it is covered calls and you would be holding the stock anyway, what is there to lose? A little extra profit if the stock takes off. 3. If you want to buy the stock anyway, selling cash secured puts on it is a nice way to get into position. If the stock didn't get that low, you still made money...
If you are investing in stocks, you are paying for all the crazy misconduct of a company's managers which essentially rips you off with their stock buybacks and outrageous compensation. However if you just trade options, you are trading a derivative and the company can be damned, it's not your problem. Risky? Options are very flexible, somewhat complicated, and have their own vocabulary, oftentimes multiple terms for the same thing. This is no reason to avoid them. Medical school is no different, and I don't see doctors throwing up their hands and quitting the practice of medicine because it's too complicated, or they can't learn everything. As in med school, you specialize, you don't have to know everything there is to know about options. Arguing that options are too dangerous is like outlawing Neurosurgery or Oncology. Sure, that would simplify things, but it wouldn't be an improvement. I wouldn't call options a business or investing, I'd stick to my medical analogy and call them a market specialty with an edge. You can make money off of skew, buy cheap volatility and sell expensive volatility, sell accelerated time decay in the front month and buy cheaper time decay further out, you name it. Investors can't make money in a flat market. These all confer an edge over time. In options, you can spread off risk, cap your possible losses, or keep your wins open ended. This is always something we should crave as traders because outliers play a big role in our long term results. PS: Leverage. There are two uses for leverage, to make a trade that wouldn't otherwise exist, or to just get bigger results. For example, if my system gives me 5 setups a week, the leverage used in options may give me 50 setups, because the market doesn't have to move as much. Blaming the misuse of leverage is like saying a car that will go 80mph is twice as dangerous as a car that will go 40mph, which of course misses the point because a determined trader can easily destroy his account with no leverage at all.
i suppose it could be - sort of generally speaking, trading is a [daily] time involved activity, and investing is a buy and hold, and wait or watch activity... [you are paid for your time, with trading] marc
you have full downside and limited upside - indeed, what is there to lose PS. I am not telling to buy options, just pointing out that it's a flawed logic PPS. Statistically, the advantage of selling options is slim but there - market-wide short convexity aversion is real. Big balls and smart leverage management are required to monetize that statistical advantage.
Just like holding most blue chip stocks??? So you agree that statistically selling is better than buying options, you aren't saying that we should buy options, in short, we are in agreement!
Beyondbreakeventrading, I really like your perspective. However, i think your view of stock investing is too harsh. Over a long period with diversification, buy and hold tends to do well. Regards,
Maker is taking both trades and offsetting both for the bid/ask spread and a small profit. He is providing the service, you are the customer.
There is a definite positive bias in being a risk premia provider of any sort - sell options, buy risky bonds etc . If you have good risk management tools and are not tied to the same risk metrics as an average institutional monkey, you can do very well. Here is a simple way to think about it. By selling convexity of any sort you are lending out your risk tolerance to other market players.