My father in law made a few hundred grand over the years selling vertical and ratio spreads, trying to make a nickle or a dime out of each position, and selling hundreds of positions all at once. I could never get into it though. Seems to much like a crap shoot. I stick to selling premium.
Seems like the law of large numbers shows most of these types of trades come out to a breakeven, and that is before spreads+commissions+fees. Although I don't discount that someone could come up with a strat that has an edge, few people are willing to stick with it long enough to find out if their strat truly has an edge or not. Apparently my father in law does.
I do have options strategies that do have very clear edge, while other don't. Some of my ratio spreads have theoretical risk but in practice I cannot lose money on, on others I can lose and take limited risk, while in the past I was doing some pure arbitrage without risk. It's a mixed bag and not very scalable because of limited opportunities, while most of my trading is mainly for research purposes, as my main task is building an automated trading system (for my own use) and for now it can only trade stocks (options in the future).
This from someone who is very computer savvy? Ever thought of using your computer? Kidding aside, I am the same, only trade one strategy but that is because I only have one that gives positive expectancy. Tried others but they were all losers: Spread, butterflies (121, 132,231..). The difference is I am computer challenged and you are not.
I am no expert but intuitively I agree with @krugman25, i.e., it reminded me of selling DOTM options.
Great post, I agree with you sir. Especially for us newbies, it is hard enough to predict direction, to get it correct timing wise, then worry about IV, vega, gamma... I am not smart enough to day trade options. Not that I didn't try, been there done that and gave up.
The most obvious reasons to trade the underlying are: 1. Arbitrage spreads 2. 1 Delta exposure always 3. "Infinite" time to develop the trade 4. More options for underlyings (some underlyings do not offer options) 5. No account access (couldn't get approval for a level you need/don't want access to margin) 6. Systematized trading (options do not lending themselves to system trading due to the degrees of freedom added by the greeks and nearly unlimited numbers of contract configurations per underlying).
Do this exercise - in excel price a liquid option over time (if you day trade, use minutes to hours) and see how much the underlying would have to move to make the same profit as you would with the underlying itself. Don't forget the spread.