Profit from market neutral options writing - possible or not?

Discussion in 'Options' started by 1.6180340, May 29, 2008.

  1. dmo

    dmo

    Very well said. You can slice and dice your risk/reward a zillion ways with options, but at the end of the day this simple truth will hold.
     
    #11     May 29, 2008
  2. "yes" is the answer, but "how" is the question!

    do you have any example?
     
    #12     May 29, 2008

  3. I see what you mean, but if thats true then it would be impossible to make somewhat consistent profit doing...well just about anything. You cant really believe that can you? Otherwise what are we we even doing here? Might as well buy a lottery ticket.
     
    #13     May 29, 2008
  4. GTS

    GTS

    If you don't have an edge then you should not expect to make money.

    If you do have an edge then there is often a multitude of ways of making money.

    Writing "market neutral options" is not an edge - you need something else.
     
    #14     May 29, 2008

  5. I see. What's your edge? haha I bet you wont tell me. Can you give me an example of what someones edge might be like? Or is that too broad of a question.
     
    #15     May 29, 2008
  6. The point simply is that by simply using a random strategy such as selling an OTM put and an OTM call a couple strikes out (and thus selling short volatility) you don't have any edge that will enable you to outperform a simple long investment in the SP500 on a risk adjusted basis over the long term.
     
    #16     May 29, 2008
  7. GTS

    GTS

    Knowing which way the market is going to go (or not go) is an obvious edge. And by "know" I mean probabilities, not certainty - e.g. anything that gives you better odds than a random guess about the market direction is an edge.

    Just like a card counter playing blackjack gets a slim edge by being aware of a skew in the distribution of the remaining cards, you need to have some additional information that gives you an edge over other players, especially in a zero-sum environment like options.
     
    #17     May 29, 2008
  8. Both replies make a lot of sense. What you're saying is to have an edge like the house does is in a casino. Sure the casino loses sometimes, but they always always make more b/c of their built in mathematical edge. I do understand that options are zero-sum. I guess the best thing to look for is to take advantage of the people that buy out of the money options. If we can somehow be the "house" and take the money of all the people that are gambling. This helps me put everything into perspective.
     
    #18     May 29, 2008
  9. Prevail

    Prevail Guest

    in my analysis the market only moves against a short option position when it attains a steepness level of x. when this level is hit I buy back month hedges. usually, this is wasted $, but when not, and even as such, the equity curve is smoothened.
     
    #19     May 29, 2008
  10. wha??
     
    #20     May 29, 2008