[NoSquigglyLines]

Originally Posted by zdo »

altradelab,

Who makes money? - the insurance company or the policy holder?
I played the ‘fools game’ in options until an old coot pulled me aside one day back in ’89 at one of Pruden’s SF meetings and convinced me never to buy premium again.

Rather than learning all the insects, birds, and other option creatures, imo it is better to just simply learn how to sell premium into net delta close to zero and from there learn how to bias and hedge your position for trends and swings, etc. Bear in mind, the zero net delta is like the footing / foundation – which needs to be sound – but the ‘living’ dynamic, utilized part is the biased structure built on top of it.

It’s not very exciting. Laying traps for suckers is a patient, boring, lowered leverage activity compared to the thrills of trying to outsmart all the Greeks at once / avoid being one of the suckers.

I'm aware this is probably not the kind of information you were looking for but with options we really don't really have many options for actually making money on a consistent basis...

Thanks for this. I would be lying if I said I understood all your post at first read ... but as I said, it's still very early days.

I did understand your analogy though and managed to do some intensive googling to complement it.

Stick with my simple explanation if you will ...
by selling premium with a net delta close to zero you are looking for the lowest probability that they will ever go in the money. I guess you also have to monitor the margin reqs as you want to minimise risk as much as possible given that (as I understand it) it will be significantly in excess of the premium.

At this point I get a bit more confused (I do have Natenberg's book in the mail though along with a couple of others!) ... as some of the 'option creatures' also place a high emphasis on being delta neutral. I guess they are not just selling premium? In addition to this, and as you said, the real skill here is learning to bias and hedge your position (and I guess this could be in the underlying instrument e.g. stocks, futures instead of options) without overtrading/overthinking in order to come out smiling the other end.

Actually, I'm not sure I've actually done anything here except regurgitate your post so apologies for that. I don't think I have enough understanding of this to engage in discussion. Can you elaborate any further or point me towards any resource online or in print? If not I will comment further as my education progresses ...

[jeffh0821]

altradelab,

I agree with you on zdo's posting. It is very cryptic and not what I would call constructive for what you are trying to accomplish. I disagree that you cannot make money with options on a consistent basis. It just depends on how you use them.

I believe (hope may be a better word) that you and I are on the right path. Start simple, don't buy into the hype of "unlimited profit, limited risk" that less scrupulous brokers may advertise and find out what works for others and what you are comfortable with. I am personally happy with what I have achieved to date. Am I destroying the markets with astronomical returns? No, but I am happy with what I am doing and I continue to learn at the same time. Perhaps in a few months I'll learn something new and gravitate away from options.

A "old coot" once pulled me aside and said that learning comes through practice, not results. I'm going to go ahead and keep plugging along.

-Jeff

PS. The recent decrease in overall market volatility (see a chart of the $VIX) is causing the premium on one of my positions to drop with no real corresponding move in the underlying. Learning: Even when the underlying moves in your direction - other market attributes contribute to the pricing of options. Be aware.

[Soultrader]

I have been told by a veteran options trader here in Japan that one of the best educational courses on options is the free course offered by thinkorswim. The guys who created them are actual successful traders and was recommended to me. Not sure if its still available but worth a look.

[zdo]

altradelab and Jeff821,
You’re right - It was not a post helpful to premium buyers. Imo, though, beginning option players should be at least aware of the option of being only a seller of premium and that was the motivation of my post. I don’t have much else to contribute re buying premium except one (untested) little diddy if you want to pm me.
If buying premium is your game - play on man. I can relate. I wish you all the best.

altradelab, if you are already trading futures, you might consider getting your option ‘kicks’ by using them as stops… particularly if you have time constraints that force you into using longer time frames for your positions. re your guesses – using seasonals and cycles, I sold mostly covered (got naked a few times like a dumbass) premium on bonds and hedged day to day / swings / extremes even further with futures... boring... and boring returns too...

re “Cryptic” Here’s hopefully some plainer English… Option sellers take the most money – because the math is in their favor AND, by a slight margin, they tend to be more careful and loss averse. I.e., as a rule, they are more conservative, experienced, “practiced” and, in the same vein, are also a little less ADHD than premium buyers. So, Jeff, re: “ Am I destroying the markets with astronomical returns? No, but I am happy with what I am doing and I continue to learn at the same time.” If indeed you can be happy with smaller but consistent returns instead of homeruns, who knows you might be a candidate for being a premium seller … be aware though, it is not a game for ‘continual learners’

re:

PS. The recent decrease in overall market volatility (see a chart of the $VIX) is causing the premium on one of my positions to drop with no real corresponding move in the underlying. Learning: Even when the underlying moves in your direction - other market attributes contribute to the pricing of options. Be aware.

In its immediacy, this is a perfect example of the premium buyer's need “to outsmart all the Greeks at once /… “