Option Writing – Promises and pitfalls

WHAT WE DO

The closest analogy to what we do with our options trades,  is running an Insurance business. we buy options too, but that is very rare. When we have some confidence on the estimated earnings.

We like it when there is panic on the street. Volatility hits the roof and premiums on options explode. This can happen on either side of the market depending on which force of human nature is at play. If FEAR is ON, you will see higher premium in PUTS and if GREED is ON, you will see higher premium in calls.

We sell those inflated Calls and Puts by creating Vertical spreads, Ratio Spreads (rarely), Covered calls, Iron Condors and Collars. If you are getting confused with the jargon, don’t worry, we will explain and devour each and every topic in detail.

We have taken a lot of inspiration from some great Option Sellers the world Over, but we do not agree with them wholeheartedly. While we are completely in sync when it comes to treating Options as depreciating assets and ranking them based on their Implied volatility, we do not share their distinct hatred for other ways of making money.

And so to demean any other way of making it big in the markets like trend following, value investing and other outliers is nothing short of arrogance and commitment bias.

Second and the most important point where we disagree with conventional option selling wisdom is trades with unlimited liability.

We believe that Option selling community suffers from the Man with a Hammer Syndrome and they fail to recognize the Fat Tail distribution while over-relying on the Gaussian Distribution, treating it as a holy grail. Please click here to read our conventional views on the subject

That said, we believe Option selling is a wonderful way of adding a regular income stream to your overall portfolio. We also believe that Options can be a wonderful tool for hedging your portfolio against imminent dangers ahead.

Options also are a wonderful tool to buy the stocks that you are interested in a lot cheaper by way of OTM puts.  We will explain all this and more as we continue in our journey together, so stay tuned and subscribe to our newsletter.