Never shorted options before

Discussion in 'Options' started by mikeenday, Nov 21, 2011.

  1. mikeenday

    mikeenday Guest

    cause this strategy is mathematically flawed.
    But I can't stop thinking of it...
     
  2. short call or put ?
     
  3. mikeenday

    mikeenday Guest

    QQQ put

     
  4. Please elaborate...
     
  5. Put selling risk is about the same as buying QQQ outright except you get paid a premium. So it's actually less.
     
  6. And you make a lot less if the market rallies.
     
  7. But you have a successful trade whether the market goes up or sideways and even in some cases, down. 66% probability of a winning trade beats 50% every time!
     
  8. The probability of each of those scenarios isn't necessarily 33%. Also, you don't account for the magnitude of the possible outcomes.

    While your expected value is probably positive in selling puts, it comes with very high volatility.
     
  9. Could you elaborate on this first point?

    While your expected value is probably positive in selling puts, it comes with very high volatility. [/QUOTE]

    Not if you sell at periods of maximum volatility. Also, don't underestimate the power of Theta decay.
     
  10. sle

    sle

    It must take a true Jedi master to know when implied volatility is at its maximum...

    If you know when vol is at its max and that asset is not going down any futher, why trade an OTM put and not just buy the asset?
     
    #10     Nov 21, 2011