One of the keys, which you are adhering to is avoiding the use of leverage. It is hard to blow up an cash only account. Other ideas include being more selective when selling puts which based on your performance, sounds like you had been doing. Another idea would be to use a stop at technically significant points on your puts to avoid some of the larger losses. I have seen several situations in the last couple of months where index puts as well as calls have appeciated several thousand percent in a matter of hours. In my opinion, option trading does not relieve a trader from many of the decisions an outright trader needs to make. There are times to either adopt a different strategy as an adjustment to changing general market conditions or to be more selective in the use of your strategy.
Why should you be a nervous wreck going long? Your losses would be limited. I am just the opposite, when I went short I was usually very nervous, even when they were covered.
premium selling is great until it isn't. i woudl use it for very shrot term trades like 3 days.. I lost 300K selling options in 3 days!! I had built it up over 3 years. I was 90 % of the open intereest in the us dollar in 1999 sold calls 119-122 in the pit.. guy from teh gold pit had to come over to get me out since no one traded the us dollar options then but me.. he made a killing.. 300K everything i lost .. that week. here were on the phone.. hi.. hey how are you .. im good.. well it looks like you need to get out huh.. I said look.. we know tht so go easy on me and jsut be fair as you can and not a greedy bastard or I will another 100 after you buy them at a much higher price.. he got the picture. still he due to the market rules he had to yell a bid offer.. i said ok.. buy em.. he said.. sorry no takers.. so we went higher still.. 3 rounds of that and I said.. cancel the order.. he said hold.. on.. YOU MY FRIEND ARE FILLED. DO NOT SELL RISK PREMIUM.. buy cheap options like 10 20 or 5 bucks and swing for the fences.. sometime you hit and they go to 400 or 500 each.. look at the svxy options in February . i amde a lot of it back with that trade alone. Good luck. if you do not listen and you sell premium then make sure if you NEVBER wait another day to get out.. just get out if you are losing and you are short options.
To clarify.. i was in the trade for 28 days.. I always sold about a month before expiration and in the last 5 days it started running.
Most of the stocks are correlated with the general market like SPY. Do you actually find it rewarding to be trading so many different equities vs just selling puts against the index? Sometimes the company volatility can be high but you are exposed to single stock specific risk. I prefer to trade the general index unless there are really good bargains in stocks that I feel are good fundamentally.
maximumpossiblesuffering gets it: "One of the keys, which you are adhering to is avoiding the use of leverage. It is hard to blow up an cash only account." I also agree with your other points. Those who compare my approach to James Coudrier of OptionSellers.com or Karen the SuperTrader are missing the point entirely. They lost everything when they no longer had the capital to cover their positions and were liquidated for margin requirements. In Karen's case, she tried to conceal the disaster with outright fraud. I will never receive a margin call because I set the cash aside to cover the position when I open it. Karen was using short strangles with unlimited risk potential. Vomma was exponential whenever her position experienced volatility in either direction. I don't do that stuff. Neither is my approach a martingale strategy. Martingales are exposed to open-ended risk. I am not. Every time I buy a put back for more than I received and sell a new one, I am actually mitigating my loss compared to an outright stock holder, with the possibility of closing at a small loss or even a profit while the stock owner must wait for full recovery. But yes, I have losses. If MSFT goes to zero tomorrow, I'll lose a lot. But how many dire warnings do you see for stock investors, "it could go to zero and you will lose everything"? It's just a knee-jerk reaction so many people have when the word "option" is brought up. Options were invented to manage risk, and that's what they do if used properly. I probably do have an irrational bias about going long. I'm just more comfortable receiving my profit up front and then seeing how much of it I can keep, rather than hoping for a large enough move before expiration to counter the eroding time value before I can make a profit. Going long does have a lot more profit potential. It just suits my temperament to hit singles and doubles. I usually struck out when I swung for the fences. Selling equity options instead of the index helps me diversify. I do have stock-specific risk, but it's spread out over several different stocks. How would I diversify if I had everything in the index? Then I would have index-specific risk.
So called "rolling" a position with options is simply reopening the same position when the option expires and you've lost the premium on the original option, in this case it's done when the price moves against. Calling it "rolling" sounds so much better than "I put $1 down on tails and lost the coin flip so I'm putting another dollar down on tails for another coin flip" which is what is actually happening.