option profitability question

Discussion in 'Options' started by aplino, Jan 4, 2020.

option profitability question

  1. Options

    2 vote(s)
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  2. Trading

    2 vote(s)
    50.0%
  1. Angelo_60

    Angelo_60

    Actually, it’s a bit worse than that.

    Just to put some hypothetical numbers, it’s more like one has 0.65 probab to win 0.3 and 0.35 probab to lose 0.7

    You don’t expect a market maker working for you free of charge, do you?


    Nevertheless, there are some ways to approach the marker as a marker taker (opposed to a market maker).

    Just two examples:

    - You may have a different idea about the probability distribution of a future move (Read interview of John Bender in stock mkt wiz and of Jamie Mai in Hedge fund mkt wiz if you'd like a deeper understanding of what I mean).

    - There are time of high stress or liquidity constraint, for example when everyone run for the same exit, and these dislocations – more often than not – create opportunity for the retail trader (if one is not running for the exit too…).



    IV is normally higher than HV, but there not a free lunch here.
    It's just fair this way (rather the question is: how much ii has to be higher?....)
    Shorting options, you’re simply paid because if you are short gamma/vega, you have cost to hedge and you have some risk that are very difficult/impossible to hedge anyway.

    So, there’s not a way to “selling option for income”. It’s more like “selling option and be paid for the risk of being short gamma/vega”.
     
    Last edited: Jan 7, 2020
    #11     Jan 7, 2020