advantage to selling options?

It's true, as most long options are used for downside protection, not directional moves.

It's like home insurance, we lose the premium every year when our house does not burn down.

 

I think the risk premium is closer to 6percent. Anything above that is you being smart or over leveraged.

 

You truly believe that option writers would settle for less than the average return of the S&P 500 (around 10% a year)?

 

Tradex pretty much has answered all your questions.

Not everybody is selling naked options. If the writer has stocks too aka covered calls, it is not a loss for him, just a predetermined gain. Sure he is missing out on the stock's rally, but probably he is still happy with the profits.

Options can be used in such complicated set ups that just simply think that the writer lost money is a mistake. We just don't know if stocks were involved or not. Or in case of verticals, the loss can be also maximized and predetermined.

But in short, the writer also makes money if the stock doesn't really move, so 2/3rd of the time is in his favor.

 

I do.

 

Hedging doesn’t change the expected value. It only changes the variance of the expected value.

Hedging means that the strike price doesn’t have much bearing on the decision to “dump the option”

 

What?

Hedging changes everything, you have 3 scenarios working for you PLUS a downside protection, what more do you want?

Do that everyday and you will earn a nice steady income, just like a casino owner.

 

Sounds like a game of Russian roulette. 9 empty chambers and 1 that kills you. You must love playing that game long run expected value for sure!

 

Nonsense, true options sellers hedge their bets, they are not crazy.

Funny, when someone talks about selling options he is automatically discouraged from doing so.

It's normal after all, options writers simply want to protect their turf...

 

People automatically discourage others from selling options, especially naked, because the streets of trading are lined with the bodies of traders who have blown out their account after being on the wrong side of a big move.