Option selling for premium

Discussion in 'Options' started by John9999, Mar 3, 2018.

  1. John9999


    Thank you everyone for your comments. Except you guys that are getting into some kind of pissing match. Probably the better bet is to put on credit spreads. That way if the underlying moves against me I’m protected.
    #21     Mar 4, 2018
  2. You don’t always need a long to protect yourself. It’s a matter of knowing the probabilities and limiting the size of your positions. I do t buy Kong’s to protect my shorts. You have to know what you’re doing. Did I blow my account up earlier this month? Not at all. I’ve already recovered those losses. I love these people are are scared shirtless to sell naked options! I guess if everybody had the courage to do it, the edge might be gone. So keep buying options. I will keep selling them to you.QUOTE="ironchef, post: 4617102, member: 485947"]Why may I ask?[/QUOTE]
    #22     Mar 4, 2018
    ironchef and John9999 like this.
  3. With credit spreads, your probability of profit goes down, you incur additional commissions and fees, and your profits will decrease. If you’re fine with that, go with it.
    #23     Mar 4, 2018
  4. newwurldmn


    credit spreads aren't inherently better than naked short options. It depends on your view. if you believe that a stock could selloff so much that you need to buy a deep OTM option, why would sell a less deep OTM option in the first place?
    #24     Mar 4, 2018
    ironchef likes this.
  5. John9999


    Thank you sweet life for that. I feel like the rest is acceptable. I mean you’re going for 100% return hoping that the short expires worthless. Certainly you have to accept that you’re going to have some 100% losses or even up to 200% or even 300%. loss before you stop yourself out.
    I’ve watched that mAny times over.

    But,,, with options on items like YM. ES. How often does a huge spike to the upside occur. Mostly, like early February it’s a monster sell off. So if you are short only with no long your in good shape.

    Here’s a comment about spreasds When you go short and long say a call for a credit spread. usually they do not move dollar for dollar together. My experience says no they don’t.
    #25     Mar 4, 2018
  6. ironchef


    I am new to options but I bag to disagree, on the pissing match part. I enjoyed reading all the different opinions and frankly if you carefully study them, they all have merits. If it were me, I would study all of the arguments, take what I need and discard what I don't, from all sides.

    One can make money both buying or writing, straight, spread or combination, the devil is in the details and without understanding the details one will be flying blind no matter what method one picks.

    After 5 years trading options, I find the market mostly very efficient and merciless but very rewarding to one who respects and understands it.

    Good luck and best wishes to you.
    #26     Mar 4, 2018
    Kim Klaiman likes this.
  7. ironchef


    Very well said. :thumbsup:

    I do understand the limiting the size part, but how do you determine if the probability is for or against you when in general the market is efficient, i.e., buyers and sellers are both knowledgeable experts in option pricing?

    Thank you and regards,

    And I will keep buying them. :D

    But I am also on your side, I do go short and often, I might add.:)
    #27     Mar 4, 2018
  8. The options chain gives you the probabilities. If I sell a 10 delta strangle, I have in excess of a 90% probability of profit. If I manage my winner at 50% of the maximum profit, I give myself around 98% probability of making a profit. Now, that 2% can be a big loser. So far this year, my trades are 94.4% profitable.

    As to size, make sure when you trade that no one trade is in excess of 2% of your net liq. As for the portfolio, I never use more than 50% of my buying power and I usually try to keep it around 35%. All these people that you hear about blowing lout their accounts are using much more of their capital in these naked trades. I like having around 65% of my portfolio in cash on the sideline.
    #28     Mar 4, 2018
    R3LZX likes this.
  9. I completely agree - but this is no different from most other professionals. Is it easy to find a good doctor, accountant or lawyer? How about a realtor? Are they worth their fees?

    In fact, most financial professionals have very limited financial education. many of them have just few months of series 7 (or whatever is required to sell securities or manage money).

    Maybe it's matter of expectations? Don't expect from average fund manager more than you expect from average realtor or accountant?

    But like in any profession, there are few who exceed expectations and provide excellent value. Same is true for trading subscription services (and I agree that 80%+ of them are garbage).
    #29     Mar 4, 2018
  10. Regarding credit spread vs. naked puts:

    In my opinion, they serve different purposes.

    The main purpose of naked puts (at least for me) is buying stocks at discount.

    The main purpose of credit spreads is getting some income with high probability trades while limiting the losses when the trade goes against you.

    In both cases, position sizing are the key. Don't sell more puts than the number of shares you are willing to own.
    #30     Mar 4, 2018
    tommcginnis likes this.