Is consistent option income possible?

Pretty nice. I'm a propenent of Tradestation, I've worked with it for over a decade. I've lately been impressed with Ninja Trader. It is amazing how TOS continues to move forward. thanks.
 
smiso24 said:
Is anyone making consistent income from option trading? I am learning about various option spread strategies and would like to know if anyone can tell me what kind of monthly returns I could expect on a percentage basis...
Click to expand...

Well...it is possible, though really hard, a few practical cases:

- That Cohen guy who runs SAC has made a fortune in his early days by...conversion/reversion arbitrage - or so he claims (he also cheated on his wife ones...check it on youtube).

- Ed Thorp who is almost an idol to me has achieved a record of 28% average per annum for like 20+ years and he used mostly...covered calls (imagine that) and convertible arbitrage (still kinda funny...).

- Hell even Warren Buffet himself is an acknowledged put seller.

The point is not to be stupid enough to use all this "google top favourite" strategies like: "covered call on MSFT at anytime...on any place" and don't think that you will find a conversion calendar spread arbitrage, long/short box or any pure arbitrage strategy just by checking manually - it's also not available in OTC exotics...since idiots and scammers price their own fx/cfd options with some imbecile premiums that don't correspond to any model (even to their own model... :).

My humble opinion:

+ Combine fundamental analysis with quantitative analysis.
+ Always hedge.
+ Never diversify.
+ Take advantage of the compound interest.
+ Think of your very own ideas - a gold making formula won't be written anywhere if it exists.

i can add more...but...
 
RPEX said:
What kind of risk limits do people have in place for ICs?
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Choosing a risk limit is largely a matter of understanding your risk tolerance and the probability of success of a given position.

That said, I never let any side of an IC exceed 20% of funds at risk (margin). Alone, this can be a misleading number. For me, it is based primarily on setting up each side of the IC such that the probability of success exceeds 80%.

Also, a simple calculation of expectation can also be misleading. For example, if one side of an IC goes against me, that usually means that the other side provides opportunities to roll for multiple profits. For example, my IC on OCT 10 RUT ended up with my taking a loss of 3.3% on the CALL side. However the PUT side was rolled twice giving profits of 7.0%, 6.8% and 5.3%. Thus, in 45 or so days I still had an IC profit of 15.8% while losing on the CALL side.

Unlike what many gurus teach, ICs are not risk free and do require modest management. Patience is often well rewarded.
 
HowardCohodas said:
Choosing a risk limit is largely a matter of understanding your risk tolerance and the probability of success of a given position.

That said, I never let any side of an IC exceed 20% of funds at risk (margin). Alone, this can be a misleading number. For me, it is based primarily on setting up each side of the IC such that the probability of success exceeds 80%.

Also, a simple calculation of expectation can also be misleading. For example, if one side of an IC goes against me, that usually means that the other side provides opportunities to roll for multiple profits. For example, my IC on OCT 10 RUT ended up with my taking a loss of 3.3% on the CALL side. However the PUT side was rolled twice giving profits of 7.0%, 6.8% and 5.3%. Thus, in 45 or so days I still had an IC profit of 15.8% while losing on the CALL side.

Unlike what many gurus teach, ICs are not risk free and do require modest management. Patience is often well rewarded.
Click to expand...

good post. rolling up the puts and keeping the call spreads on a short leash is working well. weighting put spread to call spreads and rolling them up is working even better.
 
HowardCohodas said:
Choosing a risk limit is largely a matter of understanding your risk tolerance and the probability of success of a given position.

That said, I never let any side of an IC exceed 20% of funds at risk (margin). Alone, this can be a misleading number. For me, it is based primarily on setting up each side of the IC such that the probability of success exceeds 80%.

Also, a simple calculation of expectation can also be misleading. For example, if one side of an IC goes against me, that usually means that the other side provides opportunities to roll for multiple profits. For example, my IC on OCT 10 RUT ended up with my taking a loss of 3.3% on the CALL side. However the PUT side was rolled twice giving profits of 7.0%, 6.8% and 5.3%. Thus, in 45 or so days I still had an IC profit of 15.8% while losing on the CALL side.

Unlike what many gurus teach, ICs are not risk free and do require modest management. Patience is often well rewarded.
Click to expand...

Cheers for the info. The credits i collect on my spreads tend to be meagre, so the risk:reward is terrible, and the last time i tried rolling up/down one side, the market swung back against me. Wit swing trading i find it fairly easy to set pre-defined limits like 'no loss (i.e. debit) greater than 5% account equity) but i'm finding that harder to do given the nature of ICs. Which makes the blowupeven greater when i lose my bottle and decide to exit. Point in case: the CME Currency futures options a couple of weeks ago, for the call side i sold 1.39/1.40 on the eur, quintupppled up at 1.39, then it went right through and i got out at the worst possible time, it just looked like a swing trade with a terrible risk:reward.
 
GTS said:
quintuple prob should have been the exit.
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I know, that was on the Wednesday of expiration week, they ran out of diet coke in the machines, so i had to switch to full fat.

Schoolboy error
 
just came across this forum and realise that there are many options traders here. :)

yes, i am making a consistent income through option trading. in particular, i sell options.



uktank

smiso24 said:
Is anyone making consistent income from option trading? I am learning about various option spread strategies and would like to know if anyone can tell me what kind of monthly returns I could expect on a percentage basis...
Click to expand...
 
uktank said:
just came across this forum and realise that there are many options traders here. :)

yes, i am making a consistent income through option trading. in particular, i sell options.

uktank
Click to expand...

Welcome aboard. Tell us more about your strategy.
 
hello! :)

i do mostly put option sellings. so far, it has been good. i have taken all my revenge on the losses i had in stocks trading and options buying.

anyone also doing options selling here?

uktank
 
What is your strategy if the market falls suddenly (e.g. could happen next week if the fed doesn't introduce QE2) - with all your short put positions?
 
i could possibly roll them or leave them. in my little options course, i actually explain what are the methods available.

uktank
 
How did you guys make out coming out of QE2 it was really interesting to watch how the IV's moved. Ended up more like and earnings play than a market trade
 
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