BUY or SELL Options - Vote

Do you mostly BUY or mostly SELL options?

  • I SELL more often than BUY

    Votes: 23 63.9%
  • I BUY more often than SELL

    Votes: 13 36.1%

  • Total voters
    36

TheBramble

Legendary member
8,395 1,170
As an ex-options buyer I came across a piece in Piper's book (Way To Trade) about the relatively low probability of making money buying options. In that there is a much higher probability of profit in selling them.

My lack of success in options in the past was more likely to due to faulty trading techniques and incorrect risk/money management than any inherent probabilistic bias.

But do the majority of options traders on t2w mostly buy or mostly sell options?
 
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bonsai

Veteren member
4,106 10
most options expire worthless, whether you buy or sell.

the profitable route is to write options.

but you had better know what you are about.
 

RogerM

Established member
752 6
This is a very sweeping generalisation, but when Implied Volatility (IV) is high, then I'm a net seller, and when IV is low AND RISING I'm a net buyer. But it's not as easy as that! If you insist on selling options naked - especially large numbers of "puts" you will eventually get taken to the cleaners by a major news event to the extent that several years profits will be wiped out in one go, and maybe more. So I prefer to be a seller of expensive options and cover them by buying cheaper options. That way I get to sleep at night.
 

TheBramble

Legendary member
8,395 1,170
RogM - how do you do that (if it's not a trading secret of course!).

Sell expensive means deep in-the-money far month (I'm guessing). But how can you 'cover' these with cheaper (out-of-the-money, near month???) options?
 

osho67

Well-known member
407 3
I would like to learn more about IV and how to interpret it. Is there some site whre I can get these figures for US stocks and Indices? Thanks
 

Marc100

Member
67 0
"But do the majority of options traders on t2w mostly buy or mostly sell options?"


I would be happier if you added a third category as the strategies I employ use equal amounts of bought and sold options, collars, bull spreads, bear spreads & horizontal spreads.

If I had to lean one way then it would be the buy side as I would rarely entertain going naked on the sell side. Only time I would entertain selling naked would be if I was willing to own the stock so, short put.

Rgds

Marc.
 
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johnk49

Member
62 0
Naked Options

There seems to be a lot of confusion about naked options(even by brokers).In the US one of the safest strategies allowed in your IRA is the writing of covered calls,yet it is almost identical to selling naked puts!!!

Work it out!!
 

volatileN

Member
93 0
My own options strategy involves being long one option against an equivalent short of a different expiry (and sometimes strike). It is a systematised calendar spread strategy.

These days I only trade the S&P 100 and 500 contracts or the QQQs due to the liquidity and relative ease of entry and exit.

What I do is I receive live prices for the options in question, extrapolate the implied volatilities for each strike and expiry and store them in an sql database. Then I plot an implied volatility surface (using a spline smoothing function between the data points).

Collecting all of the historic data allows me to visualise when the vols are high and low at different points on the surface relative to the historic values. I then go short the high, long the low and await convergence whilst hedging my delta in the cash market. The ratios are important as one wants to start out with matching vegas (so the + and - are 0).

This has made me an average of around 300% a year for 4 years with the worst year at 46%.

The attached is a sample surface I did for some currency options I was playing with... they didn't work out so well in the trials so I never adopted it but the principle is the same.
 

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johnk49

Member
62 0
Naked Options

There seems to be a lot of confusion about naked options(even by brokers).In the US one of the safest strategies allowed in your IRA is the writing of covered calls,yet it is almost identical to selling naked puts!!!

Work it out!!
 

TBS

Well-known member
385 0
Re: Naked Options

johnk49 said:
There seems to be a lot of confusion about naked options(even by brokers).In the US one of the safest strategies allowed in your IRA is the writing of covered calls,yet it is almost identical to selling naked puts!!!

Work it out!!

.. ermm, no it isn't - naked means you do not own any of the underlying stock, the strategy of selling a covered call applies if you own the underlying stock and are capable of delivering it to whomever you sold the option to buy - you are limiting your downside by virtue of the fact you own the stock.
 

osho67

Well-known member
407 3
Dear VolatileN

Your post is very encouraging, though technical for me to understand . I would be much obliged if you can give details of actual or hypothetical trade with profit outcome and I might understand it a bit more. Thanks
 

RogerM

Established member
752 6
Hey! This is becoming a great thread. :)

volatileN - I like your calendar spread strategy. How are you interpolating the IV? Is the sql database one you have programmed yourself or is it a proprietory one? Does it enable you to set an alert for when (say) the IV skew between near and far months exceeds a certain level?

TBS - at the risk of indulging in semantics, wouldn't you say that the positions were near enough the same PROVIDED that you held sufficient funds to buy the shares that the short put makes you liable for, and ignoring dividends?

marc100 - I don't disagree with your sentiment. I am not allergic to holding short calls on indices (NOT shares) on the basis that a spike up should always revert to the mean and won't continue for ever, so you can maybe roll out into a later month. Just pray that your margin will stand it tho'.
 

johnk49

Member
62 0
Re: Re: Naked Options

TBS said:


.. ermm, no it isn't - naked means you do not own any of the underlying stock, the strategy of selling a covered call applies if you own the underlying stock and are capable of delivering it to whomever you sold the option to buy - you are limiting your down
side by virtue of the fact you own the stock.


No you are wrong!!

This is what I mean when I say people get confused.

Look,buy stock at 50 sell a CC at 50 for 1 stock drops to 40 you are 9 down.

Sell a naked put at 50 for 1 stock drops to 40 stock will be put to you at 50 minus the 1 you received you are 9 down.Exactly the same!

If,at expiration,stock is above 50,1 point will be gained in both instances!

It does not matter how low or how high the stock goes the results for both are the same.You could say the naked put has the advantage in that the margin requirement is a lot less than buying the stock!!
 

Robertral

Well-known member
446 3
Re: Re: Re: Naked Options

johnk49 said:



No you are wrong!!

This is what I mean when I say people get confused.

Look,buy stock at 50 sell a CC at 50 for 1 stock drops to 40 you are 9 down.

Sell a naked put at 50 for 1 stock drops to 40 stock will be put to you at 50 minus the 1 you received you are 9 down.Exactly the same!

If,at expiration,stock is above 50,1 point will be gained in both instances!

It does not matter how low or how high the stock goes the results for both are the same.You could say the naked put has the advantage in that the margin requirement is a lot less than buying the stock!!

TBS is correct. Naked call/put means that you sell the option without being hedged with the underlying. Delta hedging ring any bells?

Covered call loss aproximatly zero with correct hedging
Naked put loss is K-S
 

TBS

Well-known member
385 0
RogerM said:
Hey! This is becoming a great thread. :)


TBS - at the risk of indulging in semantics, wouldn't you say that the positions were near enough the same PROVIDED that you held sufficient funds to buy the shares that the short put makes you liable for, and ignoring dividends?


No :cheesy: Completely different risk profile - if you already own the stock, then you are covered.

If you 'intend' to buy the stock if things go against you then you are not covered and are open to some really nasty surprises. (like some idiot at SHEL can't count)

Plus, if you own the stock you may be more willing to trade closer to the money - if you are agressive - or to the other extreme, waaaaaaaaaaay out of the money because you see it as an enhancement to a position rather than a separate position in its own right.

The strategy and the psychology of a covered call - and its affect on the trader and the margin affects on accounts etc... are very different to straight nakeds.

BTW bought SHEL 420 dec calls for 5p today for a giggle
 
 
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