Do the two have to be mutually exclusive? I'm not sure I understand why that would have to be the case. It would seem to me that one's overall option trading portfolio could have both long gamma and short gamma trades. Indexes and/or stocks with relatively high IV could be more conducive to short gamma, while individual names with relatively low IVs and the expectation of significant moves would be better suited for long gamma. It just seems to me that to blend both long gamma and short gamma trades together makes sense from a portfolio diversification viewpoint. In an "investment" portfolio one blends stocks with bonds, and even within stocks value with growth to increase risk-adjusted returns and have components with negative correlation. It would seem to me the same principle would hold with an option trading book. Have some positive delta trades, some neutral, some negative. Have some long gamma and vega, and some short gamma and vega. That way something is always bound to be working out right.
One of my favorite short gamma trades is to look for very strong or weak trending stocks and buy or sell the underlying and sell the straddle. I really like the juice you can collect on these plays because you can make a lot of money if the stock continues in the trend or if it starts to consolidate. I find that selling premium allows me to hold a position better then just taking an outright long and short position and setting tight stops. The short premium gives you some room to hold onto a very strong or weak stock without getting shaken out. I don't like to sell premium on choppy stocks or stocks that are range bound because I find they are way too unpredictable to trade the gamma. Of course I like to sell expensive vega on wingspreads. Not a lot of expensive vega in this environment but there are plays out there. And they tend to work very well, especially if you are a good gamma trader.
Yes, I do this quite a bit too, but prefer strangles. One of my favored positions right now is the N225 contract traded in Osaka. I'm scalping w/ a long bias and keep the strangle working. I'm expecting the upside trend to remain in place for some time, and at the worst to see some sideways action. Had a similar position on NTES last couple of weeks but volatility last week was not to my liking. Fortunately Bear Stearns upgraded on Friday and handed me an exit door.
Yeah I think selling premium on a nice upward sloping stock or index is really a great play. You have so many things working for you. You have a slow decrease in vol, you have a lot of slow moving and grinding action, and you have a very predictable pattern to trade off of. On indexes I like to enter on sharp pullbacks after you get a spike in VOL.
No,I dont want anyone to hold my hand.The point I am trying to make is that sometimes you get the feeling that people dont want newbies to trade options. It starts with the brokers,you have to lie about your experience just so you can open an account!Then you waste money on the various books out there"buy calls buy puts". I know that you know that the money to be made in options is in selling premium,but the doom and gloom that surrounds this subject is spine chilling!You have a broker who will encourage you to sell covered calls in your IRA account(what is an IRA account btw?I'm not from the US)but mention that you want to sell a naked put which is more or less the same thing and,my God!It's like someone just shoved a 12 inch dick up their arse!As for naked calls,well dont even go there. I dont know,perhaps the pro's at ET dont like to encourage newbies to sell premium because they genuinely would feel guilty if he became unstuck.I can underatand that,but you have to start somewhere and my feelings with options is that there is no"shallow end",from the beginning you are more or less in at the deep end and without the proper guidance you are going to drown. No riskarb,I dont want you to hold my hand.I am an intelligent person I have travelled the world North South East and West,I speak 4 languages.My point being,if you were to email me and ask my advice about visiting a country that I knew well,I would genuinely try and point out the good things and the bad.Iwould try to show you things that you would never find in a travel Guide Book,and thats what I mean about options trading.That's not holding hands,it's just about one human being trying to share his knowledge! Finally,after all this rambling,can I just say I am a seeker of knowledge,yes even forbidden knowledge.
Have an exit plan ahead of time, for when things go bad. This will help avoid feeling anxious and acting irrationally. This will remove emotion and that feeling of panic. Do not get overexposed. At some stage things will go bad when you least expect it. Selling OTM premium is a viable strategy, but very different from trading stocks. Allocate correctly and have appropriate stops. I believe a 10-25% annual return is achievable and realistic. Those shooting for a double have their expectations set too high imo.
Well, that's me. I need the income and can't stand a negative expectation. However, I am acronym-challenged. Riskarb: what do you mean by LR, UR, URO and FI?
Like we got thursday with the QQQ? I do too, has worked well for me so far, except I don't sell premium (long calls right now) because my account is too small, I hope to start in the future though
====================== Probably will not mean any thing to you at first; like M. Steinhardt comment of looking at the other side of the trade also. To put it simple, like to study & make notes on index options to the degree that ; occasional selling to close long index calls in a bull market makes profitable sense. This buyer knows that the seller has the edge in a sideways trend.[also called rangebound market].