Buyers: populated with rank-amateurs Sellers: populated with amateurs Hedging: the only thread of value
A problem is too many sellers and too little buyers would artificially lift many options prices to be higher than normally needed. Higher options prices would discourage not only potential buyers for speculation but also buyers for hedging. Sellers competing each other would make the premium up to a higher and higher level. The overall equity market would be forced lower because that is the only way to make money for the professionals. Trading options can be done with very limited knowledge in options, cf Korean options market that would make prices of options very cheap to beneficial to all market players.
Perhaps every seller would know when to buy options once IV is low. That's why option price is kept always high. Of course sellers can simply buy options for hedging, if preferred. Saying large capital in required for sellers to make a living would be either misleading or using inferior strategies.
A couple of points regarding selling - Writing options for a living, from first hand experience, one of the hardest ways to make a living I can think of! I also have friends who have spent decades as full time options writers, we catch up for a coffee / beer often, always the machine gun style talk and jerky nervous movement they exhibit reminds me of my time as a writer. In 98 my arse was handed to me, lost the lot. The small returns force you to take larger than approprate risks with the accompanying blowup always just around the corner. I know some people will say hedging is the way to go, try honestly factoring the costs in and see where you end up. If it was as easy as simply hedging the boys in the ivory towers would have already removed any opportunities. Regarding buying options, if you have the skill to understand the market then you don't need to take on these huge potential risks, the caveat is you must understand the market extremely well and you must understand option behavior at least for the strategies you employ. Re- mindset, trading style and strategies, you are 100% correct of which I'm not going to go into on a public forum! But will say that most on ET appear to be blowing it out their arses, on the other hand it might also be deliberate misinformation. I will say that scarce gems can be found on ET but suspect that many are not knowledgable enough to recognize this info! Regards Johno
Me neither. The trick to successful trading of options or anything else is to take advantage of the opportunities the market gives you. Sometimes that means going long, sometimes short, sometimes both simultaneously (spreading). Contrary to what most people here desperately want to believe, you can't arbitrarily impose your pet strategy on the market week after week and expect to come out ahead. I'll make an analogy to sailing. If you want to race successfully, you first take into account the weather. Then, given the prevailing conditions, you choose the appropriate sails, point of sail, sail trim, etc. You can't say "Well, the wind is blowing 50 knots from the east, but no matter, I'm going to point the boat straight east and fly my favorite big nylon spinnaker just like I always do."
For myself, when I talk about long I'm refering to being a buyer as opposed to being a seller and Debit Spreads as opposed to Credit Spreads. Long or Short the market outright or with spreads. As a Skiff sailor I appreciate your analogy and it's not much fun blowing out your spinnaker so it should be avioded at all costs! Regards Johno
Should I say every options buyer is also a seller of options of basically the equal amount of options bought earlier.
And it's especially tough to make headway sailing straight into the wind with your spinnaker up! But that's what I see here all the time. People like flying that spinnaker, so the wind direction be damned!