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Guy,
on the fifth day of Creation, when the Lord had just made the lion and the
lamb, it is said He felt inspired by these two creatures to create even more
perfect beings the following day. He thought of the fighting spirit
exemplified by the lion, and the patience and long-suffering which was so
characteristic of the lamb; and He decided He would create the first
couple - an option buyer and an option seller.
Of course, we all know how He later changed His mind, much to the detriment
of recorded history ever since. The basic characteristics, however, of these
two types of option traders remained the same, and the question for you now
is whether to live your option trading life more like a lion or more like a
lamb.
I understand you have been told that as an option seller you'd have time
decay on your side. This, of course, is true, but consider the price!
Unlimited risk, compensated with very limited premium income. This is good
for people (and trading systems) with a lamb-like mindset, content with
munching a little grass while patiently waiting for the shear (the
unavoidable occasional big loss) - or for slaughter.
Your trading system as you described it in your posts does not lend itself
to this kind of passivity. I don't believe any option professional would
advise you to trade your system through the instrument of selling naked
options. Vertical or diagonal spreads may be possible, but they, too,
severely limit your profits. Allow me to reiterate from my last post to you:
"...selling naked options leaves losses unprotected (they remain the same
size as before with futures), whilst minimizing profits to the premium
received. The pain's still the same, the rewards aren't."
To a lesser degree, this is equally true of the above-mentioned credit
spreads. With a system like yours, and I looked at your numbers closely,
IMHO you should avoid any strategy where you would be short premium. Going
for small premium income just doesn't provide a good mathematical fit for
the macho lion-like personality of your trading system. That's for sure.
Kind regards from Germany,
Michael Suesserott
PS: I hope I didn't hurt anyone's religious feelings with the little liberty
I took with the story of creation. No offense intended. I have the greatest
respect for the Bible.
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