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Strategies & Market Trends : Paint The Table
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To: Oral Roberts who wrote (8405)1/4/2002 5:30:21 PM
From: jcky  Read Replies (1) of 23786
 
< Very little doubt though that option seller's make a damn sight more money then us fools that are buyers. I mean look at the premium I just paid that will evaporate over the next 2 weeks. Stock will probably have to fall below 47 before I see much more then the 3.5 >

In the long run, sellers of option do much better than buyers. No doubt about it. For example, I sold naked puts on BRCM, BRCD and CSCO that expire two weeks from today about two weeks ago since January is traditional a good month for the market (i.e. the January effect). Since the VIX has been so low recently, the price of the options that were sold to me were pretty low.

On the other hand, when volatility is low and option premium are very affordable (as it is now) then it is a good time to buy options. The problem here is that time decay for options is deadly, and this is especially true, for the two weeks prior to expiry as the time value in your option decays exponentially. So you need very violent moves by the underlying derivative to gain a nice profit. The way to get around this is to buy options that are further out in time. But this isn't a free ride either as the spread between the bid and ask prices are wider.

The bottom line: option market makers are thieves.
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