The complete guide to option selling By James Cordier and Michael Gross. http://www.amazon.com/Complete-Guid...bs_sr_1?ie=UTF8&s=books&qid=1221438074&sr=1-1 Great book. To knowledgeable, prudent investors (like me), it starts with the right foot: Start with a fundamental/seasonal analysis and with a intermediate time-frame of about 90 days. This may make gamblers flee right after reading the first chapter. The main strategy is selling far out of the money options, following the main trend; so small hiccups before recovering the trend, don't wipe you out -unlike most overleveraged futures traders-. It frowns upon bull/bear call/put spreads, because they require the future to move within a certain timeframe. It recommends "staggering" options of different expirations and strikes to reduce risk and diversify. After all selling options is a relatively long term strategy. Using a full-service broker is recommended, so they can give you advice, or at least provide you with research analysis. Since they don't trade that often, full-service commissions don't compromise the trades' profitability. Easy to read book with almost no complex concepts.
Never read the book but the real money in options is made writing them not buying them. Buy them when you must hedge, rest of the time, write. Emini Guru
so much for your image. You work for Liberty or something? Writing options has little to no advantage. Try doing some homework.
Why do you think most options expire worthless ? Just write them ridiculous overpriced when the VIX is at extremes and this fear or greed will catch a few emotional traders as bait. Emini Guru
Now this looks like an interesting conversation for new comers (ie myself) TraderZone. Why is there no edge in Selling options? (Not siding with emini, serious question)
Right, but because of that would you say that it has no place in any sized portfolio, any diversified strategy?
If there is no money to be made in writing options, I'd have been out of this gig long ago but I've been doing this for almost 20 years. There's plenty to be made. With the VIX were it's at and where it's been for the past few months, it's crazy to to sell into this (with protection, hence my moniker 'covered_call'). And, btw, sell covered calls is not my only gig. Risk rerversals (combos) have been a huge, huge trade lately as has buying / selling verticals, diagonals, xmas trees, you name it. This market is rich in premium. Naked sales have blown alot of folks out, but there has been, and will be considerable $$$ to bank in this environment.
Like others have said there is no "automatic" edge to selling options. The very nature of options and put-call parity argues against this. There may be a very slight upward bias, close to the risk-free interest rate (demonstrated by the sp500 covered call index). But I wouldn't call that a real edge. Think about it. How can there be a widely known edge of ANY kind in the markets? Markets don't work that way. Yeah, some people can make money selling OTM (for example) ops every month. But most of these guys eventually blow up. Are they "pros"? Then there is Taleb who makes a lot buying options, every now and then anyway, and bleeds the rest of the time. Maybe pros sell more ops and then have the savvy and experience to adjust when their short strikes are threatened. But then that's "trading", not just "writing" options. Good luck to all!