Discussion in 'Options' started by zunonline, Jul 21, 2013.
Did you seriously sell a leap credit spread for .21?
Why collect premium when you can give options away for free?
"Two, theta for all practical purposes does not really exist. It's up there with the unicorn and the tooth fairy. The greeks were never created to measure sensitivity on individual issues. They were always meant to understand aggregate risk since aggregate risk is considerably more difficult to manage. But on a single name, theta does not and cannot work for or against you and this can be proven mathematically without any bias. When you buy or sell an option, you are speculating on distribution. That is what an option is after all. It's a measure of distribution. Do I think the average option trader understands this? Of course not. So instead the avg Joe thinks he is earning "theta" or engaging in an "income" strategy. This same guy probably attended a Carton Sheets real estate seminar on "how to buy real estate with no money down". "
Mav can you expand on this when you get a chance not sure I am following you here.
You can't argue with the fact that you lost money on put and the person who sold it - made money. You would be even a bigger winner if you hadn't had bought the put.
You are contradicting yourself. In your AAPL hedge example you ARE an option loser. Who cares if you're hedged with the underlying? If you're discussing options then stay in the option universe.
And if there is no edge in selling options then how do you account for all the hedgers who lose money in the options market while hedging their underlyings? They may not be losers overall but in the options universe they are. Unless you feel all hedges are zero sum as well.
I thought all options were fairly priced? Why would this be a bad trade? Just because of the 12/1 risk/reward?
You only got out of the way cuz the steamroller was moving slowly. A fast steamroller will crush your position regardless of adjustment techniques.
NOTE - I'm not trying to stir up sh*t. I respect both your guys knowledge. Just felt like being the consistency police today.
You earn theta, but it's not free. You have to earn theta in excess of the costs of gamma, delta, and often other cross greeks. You may not recognize this in your pnl statement but they are there.
Options are statistically overpriced. But the world isn't stupid. There is a very good reason for it: no one can afford to take the blow up risk. Even Warren Buffet.
We all know home insurance is overpriced, but how many of us are in a position to not buy it? And then, how many of us are ready to write a policy on our neighbor's house?
Also, what about the fact that realized vol is usually lower than implied? There was some research about it, but can be easily calculated. Of course, during crashes selling vol losses money, but it can quickly recover:
Realized vol may be lower than implied, but you will still lose money if there is a trend against you.
For example, consider a slow steady rise in the market. Realized vol (std. deviation of return which is the ratio of daily prices) will be close to zero, but short calls will go into the money and lose large amounts.
only if you if you don't delta hedge. And if you don't then you have a trade on a different timeframe (distribution trade).
That is correct and many posters here are not delta hedging appropriately. They make no mention if it.
They are naively stating that you can just sell premium and make money provided implied volatility is greater than realized volatility, which is not correct unless the market stays flat. I am addressing those posts.
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