I’ve not been blogging for a long time, but I’ve not stopped learning how to trade… not for a single moment….
I’ve been reading the book “The complete guide to options selling” and have been very attracted to the idea of options selling… The fact that 80% of all options expire worthless is not something new for me… I’ve heard of it years ago…. but somehow, it seems extremely appealling now…. maybe it’s because I know of someone who has been doing it successfully…. and more importantly, I recall that in the past, I always do better when selling options… vs buying options….
Pros of Options Selling
1) High Probability of Winning
2) No need to worry about closing the position
3) Only need to think of stop loss
My past weakness has always been my exit strategy… I always exit too soon, settling for a small profit, which at times, is not enough to cover my losses…..
Cons of Naked Options Selling (and how I plan to overcome them)
1) High margin requirements (Sell naked options only for stocks < $50)
2) Stocks tend to gap (never sell before earnings date/ sell spreads instead of naked options / sell options of ETF, which tends to gap less)
3) Limited Profit (but high probability)
Cons of Spread Selling
1) High commission (sell spreads only for stocks > $100, so that the credit received can be > $1)
2) Difficult to find suitable candidates (I guess if I am not solely dependent on options trading, this should be ok… a bit of profit is better than no profit)
So, in short, I’ve decided to change my options trading approach to a statistical approach… pretty much like a professional gambler, like the guy in “Bringing Down the House”….
TRADING IS A STATISTICAL AND PSYCHOLOGICAL GAME
