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I have seen to many people go broke doing just that. Yes, it will
generate cash flow over a period of time, but the one time you are
wrong, you are living under a bridge. If you are going to sell premium
based on volatility reduction and time erosion, why not sell outside
combinations? That way you make the time premium on both the calls and
the puts. you remain delta neutral and on 2 limit moves you could be out
several million if your size got big enough. I have a rule that I have
followed for years. Never be short more options then you are long.
Always know exactly what your risk is from zero to infinity. Always
trade with limited risk and unlimited profit potential. Ira.
Tom MacDonald wrote:
> Using delta neutral credit spreads designed to make money from
> falling volatility, you can actually choose the % probability of
> your trade being successful by the targets you
> pick...70%...80%...even greater than 90%.
>
> Tom
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