nickle and diming OTM options contracts

I started trading 6 months ago and adopted and use a 1.5 to 2 std move to pick my strikes. On average I probably collect about 0.1 premium and diversify over 4-5 underlyings.

My go to strategy has been a naked strangle and weighted differently on either leg depending on my assumed direction. To date, ive averaged 2% per month on high volume of trades.

does anyone else find themselves picking up nickles and dimes? im looking for some tips /suggestions/criticisms of my strat because I feel like Ive stagnated in trader development.

open to all comments. thanks im advance!

 

I just set my egg timer. You let me know when it rings.

 

no idea what that means.

 

Selling OTM options for nickels and dimes is like:




Will all the king's horses and all the king's men be able to put you together again if you fall?

 

Exactly.

There are things we know we know.

There are things we know we don't know.

And the worst of them, there are things we don't know that we don't know.

You fall under the 3rd.

 

http://www.northjersey.com/news/ber..._managers_death_sparks_suit_by_investors.html

The guy they speak of in this link had the same strategy. He was doing very well for about 6 months until TPX took a dive.

Sooner or later selling naked premium will catch up to you.

 

You should be able to survive a shock without having to compromise on position size afterwards. If you can do that, then you are scaled appropriately. Question you should be asking is how big of a shock should you be scaling to?

 

Yes, if a really big, strong trend forms, you could get hurt very badly. Do you understand why?

 

The last six months are not a good indicator of what to expect. If you are basing your expected losses off 2sd moves on individual stocks then you might be in for a shock when one of your underlyings really get hit . Remember on the downside you have to not only model the delta hit but the vega hit on your short put too. I have always found that to be truly comfortable with the risk I had to trade so small that I was better off throwing on hedges. That being said, on this very forum there is a discussion of the Supertrader Karen who trades strangles on the SPX and is managing 196million so everybody thinks about risk differently.

 

you might blow up someday. but you might make a ton of money before that and decide to quit. there are an equal number of stories about people who were only long premium and they still lost money.