Joe, Petz, Nice, and all,
Formulas can have predicative values, but they rarely are useful when one buys or sell options. Option prices are obviously much more volatile %-wise than the underlying stocks. With a stock such as AMD, by the time you figure out what you want to pay or to get, the option prices could have changed already.
Another obvious thing is that the market makers make money, as the spread is almost always wide, so street buyers and sellers like us are at a disadvantage.
With the volatility and the large spreads, making money off options is difficult if you are buying options, as you have another disadvantage. When you buy options, you are buying a perishable commodity, time, which expires relentlessly and without fail. To make money, you have to first gain the option premium you pay, just to get even. Of course anything over that is gravy, and sometimes pure gold.
Nevertheless, hitting paydirt buying options is usually futile, exception in rare situations like AMD going straight up and you have call options. I would like to congratulate everyone who has been blessed with this fortune lately.
In most cases, I think the figure 97% is often used, options expire worthless, which means in more than 97% of the time, the option buyers lose money, as one can still lose money even when the options do not expire worthless.
One sure way to make money most of the time is writing options, as you have the odds on your side. Even though we may disagree with Elmer's writings, his method of writing puts, and sometimes writing calls, has been consistently profitable.
Elmer apparently generally writes out-of-money puts, and rarely has shares put to him. I would presume he consistently make money writing options, mostly puts.
I have been writing puts for many months, and have been VERY profitable. I often write in-the-money puts, with sometimes large premiums. With stocks such as AMD, in-the-money puts often turn to out-of-money, and expire worthless. At most monthly expirations, I get to keep the option money, "easy money" as people call it. Even when I did have stocks put to me, they invariably rose in price, so I made more money off those.
Making money off AMD stock has been very profitable lately. Making money off put writing can be just as profitable, and more exciting and with less risks.
Richard |
