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To have a profit when buying options you have to be correct in the direction of futures even to the point where, depending on distance of your options trike vs futures, even if futures move in your intended direction, they have to move enough to offset time decay of the premium.
When you sell options you can be somewhat off on the direction of futures and still profit. A small movement in futures against you might not offset the time decay of the premium.
Yes time does a favor to one selling.
Having in past mostly bought options or entered contracts, I am now more focused on selling options. The reason is time is in my favor.
My thoughts of selling are you can only make so much a contract yet ones losses can be limitless. If one studies the fundamental part it should make things more clear.
In past I was all technical now that I have started leaning more toward selling I find fundamentals more important to my type of Tradeing.
I have just started looking at COT data. Usually the commercial an non commercial positions are in opposite. Sometimes they are the same where then the non reportable source make up the difference.
What I am wondering is how to best utilize it selling options?
There are markets where the number of contracts by non commercial out number commercial and vice verse.
My thoughts are one represents a weak market an the other a strong.
Commercials usually buy into falling prices. They hold their largest position at the price low. Commercials do not have to liquidate positions, when they move against them. They can give or take delivery when the future expires.
Non-Commercials usually buy into higher prices. They tend to liquidate positions that move against them, as they usually do not give or take delivery when the future expires.
How do I use this in selling opions ? I will explain for selling calls, but of course it works for selling puts in an analogue way.
1. When the non-commercial position is at a multi-year maximum you have to ask yourself: Who else should buy ? Very often the price is near a maximum, and it is a good place to sell calls. But be careful: There are few cases when commercials were on the wrong side and bought their shorts back. This usually ends in a dramatic rise of price.
2. COT data gives you a clue where the next move can be expected. But it never is an entry signal. You have to look for an entry signal somewhere else, eg. in the chart.
3. If non-commercials hold a significant short position there is risk that in case of a bullish change in fundamentals there is significant short-covering by non-commercials. Thus, I do not sell calls in such situation.
Going to bookmark this thread myrrdin, thanks for starting it.
The other fake selling options thread (not this one) would have resulted in millions upon millions in loses during the Chinese devaluation in Aug 15. He stated he unloaded his positions overnight, of course none of his positions matched up with any time and sales listed. He promptly put me ignore when I questioned him, only to go on to fool the masses some more I see from looking at the other thread.
Volatility is good for the market and trading.
Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
You are welcome. Please feel free to post your trading ideas and comments in this thread.
I appreciate Ron's contribution to this forum. He gave me a lot of trading ideas, and helped with his experience and his abillity to backtest. I consider his feedback regarding my ideas as very helpful. Thus, my trading was improved significantly.
I would appreciate to keep all personal matters out of this thread.
Good trading !
Best regards, Myrrdin
PS: I would appreciate if you would delete the second paragraph of your contribution.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
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I initially thought he meant ron, which would have greatly surprised me, but looking at his activity (all be it from 2015!) I think he might mean somebody else, who hasn't posted in many months also.
In the first posts of his thread "Selling Options on /ES" he mentions Ron's name explicitely. And when you reminded him to ask for Ron99's permission before posting personal communication he did not make a comment that Ron99 is not the Ron he means. But I would expect that he will correct me, if I am wrong.
Ron's thread and strategies have opened me to a whole new world so just wanted to thank him and agree with u M on your post...ok now back to the topic on hand... Vol is really low these days... Wondering if selling straddles better than just selling 1 side even if they are skewed with our directional bias