Expiry day trading / selling (0dte) has its own pros and cons
main problem is spikes we see very frequently - lately very regularly.
Yes we can create spread but buy leg will most of the premium and risk is still there (even though its limited compared to naked selling)
So I want to learn from experience people - about pros and cons
Yes one problem I already know is black swan event or very volatile gap and gap down(in case of next day selling)
But what about longer duration option selling like a month of more from today?
One potential is black swan even (even in longer duration selling)
Avoid hindsight bias. (looking back, it is easy explained)
Avoid normalcy bias. (once bitten, twice shy)
Avoid trying to time the market.
My personal opinion?
Trading options is a big no no then (mainly due to point 5) ?
Don’t you have anything (or two, or three)
less riskier to do with your life (time and money)
than spend it trading options ?
If no,
eg. all other less-riskier investment classes already in place / maxed-out,
to take care of one’s day-to-day finances and long-term financial needs,
then maybe indulge in trading options with “throwaway money”
keeping in mind the above implications of “Black Swan” events.
If you are already trading options and looking to migrate to longer-term options,
while you might be mitigating some types of risks (eg. Volatility)
you can evaluate which of the other types of risks you are exposing yourself to more.
24 Types of Risk
Losing money – The possibility of permanent loss is the main form of risk.
Falling short – Not having to make necessary payouts or income to live on.
Missing opportunities – Not taking enough risk.
FOMO (Fear of Missing Out) – Jumping on the bandwagon of risky investments for fear of living with envy.
Credit – The risk that a borrower will be unable to pay interest and repay principal as scheduled.
Illiquidity – The inability to sell when you need the money.
Concentration – The risk of not being diversified when sectors drop in value.
Leverage – Losses are magnified when investments decline in value by using borrowed money.
Funding – The need to make a capital call when a loan comes due.
Manager – The risk of picking the wrong one.
Overdiversification – The standards of inclusion may drop leading to the potential of lower risk-adjusted returns.
Volatility – This introduces an emotional component that may result in a permanent loss from selling too soon.
Basis – This applies to arbitrageurs who go long one security and short another based on one being cheaper than the other and common patterns repeating themselves and yet something goes awry where the relationship breaks.
Model – Excessive belief in a model’s efficacy can lead to excessive risk taking.
Black Swan – Just because something hasn’t happened doesn’t mean it won’t happen. This is the statistically inconceivable event that materializes.
Career – If rewards are shared asymmetrically then it may not be in a money manager’s best interest to take risks where there could be short term pain, but long-term pain for fear of losing clients or his or her job.
Headline – This is when losses are big enough that they can potentially generate media attention.
Event – Tends to apply to bondholders when the equity owners leverage up the company and put the bonds at more risk.
Fundamental – Assets or companies underperform in the real world.
Valuation – Overpaying for an investment.
Correlation – Being less diversified than expected. Everything goes down much to the surprise of an investor.
Interest Rate – The risk that higher rates can lower the value of fixed income securities and other yield-oriented investments.
Purchasing Power – The risk that cash received in the future will be eroded in value due to inflation.
Upside – The risk of being under-exposed to very good economic and financial events that occur in the future.
Hi have been trading options since last 5 years, and I am profitable since 1st year. Earlier I used to sell penny options and weekly condors when we used to have leverage. Then I started intraday, mainly selling straddles and strangles. But when lot size was reduced I made good losses due to volatility, W and N moves used to take away weeks sometime entire month of profit. Then I decided to completely stop intraday and have been doing monthly options.
Pros
Quite stable
Less hectic and no need to watch charts/numbers every minute.
You get time to react and adjust the positions.
Trading cost will be also be reduced.
Cons
No thrill, it gets boring sometimes
Carry forward risk, Gap openings will ruin the game
Little anxiety when you are carrying overnight positions and you hear about some major world event.
Less ROI as compared to Intraday.
Suggestions
Always go hedged (Cost will increase but capital protection should be the priority)
Do not try to fight the market, it won’t adjust as per your view, you have to adjust your views as per market’s movement.
Accept the losses and drawdowns, without them you can never make new equity high.
Try to have a group of friends/community to talk. Sometimes it becomes tough to deal with the stress of losses and DD on your own.
Have realistic expectations from the market, journey will be smooth.
Accept the risk, it will always be there, you can never mitigate it upto your comfort level.
Have an other source of income. It really helps during DD and major loss. Your mindset will change once you are not dependent on options for bread and butter.
The biggest advantage of intraday expiry trading is the absence of overnight risk. Its a big factor though.
Carrying positions overnight has a good profit opportunity but is also equally powerful to wipe out the capital.
If the premiums are low, earn what is available - stay humble. No one will really question you if you make a little less than usual this month vs the last. But if you lose your capital, people will start pointing their fingers at you. Even you will feel miserable.
As an option seller I prefer selling daily and weekly instead of monthly. Even if I get the direction is wrong, time is on my side. The probability of winning is higher.
My view on options.
Monthly is for buyers and weekly is for sellers.
ITM is for buyers and OTMs are for sellers.
