A fixed limited risk in options is when you buy calls/puts. You pay a premium and that is all you can lose.
When you are selling options you have the opposite - unlimited risk and a limited gain. The maximum gain is the premium.
Earning from time decay just means juggling the overall net exposure to keep it close to neutral. Sounds easy, and is easy - until the markets suddenly jump off the cliff.
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Not true, Iron Condors are a limited risk short option strategy amongst others.
Options buying is almost always a losing strategy, even though it is limited risk. It just means you are slowing losing.
Also not true about naked options risk. Naked puts are far less risky than straight stock. When selling naked puts vs. Buying straight stock, portfolio risk was roughly 50% lower and maximum drawdown lower as well.
This is 1 of about a 100 different studies I could pull up to show short naked premium is less risky and often more profitable than most other forms of trading.
@BaconSandwich
Managing a portfolio of sold options is, in my opinion, like walking a tightrope over a canyon. It is all about keeping your balance.
That is ok when the weather is mild but gets exciting when itās windy. But when the gales start blasting from all directions it can get quite scary and suddenly your balanced exposure is growing too big and a fall can be very close.
Running a sold position option portfolio is a sophisticated and very rewarding occupation but requires constant monitoring and attention and can get quite exhausting for a sole trader if the position grows too big if constant balancing is achieved by selling more and more options with various strike price.
I think you would enjoy it!
I disagree, it is not sophisticated. It is actually very mechanical and rules based. I also rarely touch my positions. Iāve only made 1 trade on my portfolio since Christmas, which was selling a naked call.
Also not true about selling more and more options to balance. I balance through rolling existing positions up/down and out, like I discuss in my intro video. A person would never have to add to a position to adjust deltaās.
To be honest, I find my 2 long stock positions more risky than my short premium positions. Mainly because they are sitting there at 100 deltaās at all time, ready to inflict maximum pain if they choose. With the options I can do some things to keep delta risk low.
Disagree as you like. I am just correcting a percieved misconception that selling an option is limited risk and unlimited gain when it is the opposite.
I am not being negative here. I think your idea here is very encouraging.
Options can be used in a whole range of creative constructions and can be combined with any number of other products to tailor oneās exposure and potential according to oneās appetite for risk and view of market direction or non-direction or hedging or add-on decay earnings from existing assets etc.
But options are a very different animal to the underlying asset and one needs to understand how they move in more dimensiobs than up or down
There should be no misconceptions here, short options are always limited profit. The limited profit can still be quite handsom, for example my short strangle on the QQQs is offering a profit of about 7% in 45 days. Not bad for limited profit on a single position.
They are not all unlimited risk as you say, that is simply not true. An iron condor has limited risk. An iron butterfly has limited risk. A calendar spread has limited risk. A vertical spread has limited risk.
If you want to post in here, what you are saying needs to be factual. You already posted a number of falsehoods such as you have to add to your position size to adjust it or that naked options have a higher risk profile than other types of trading.
Both false and I just posted links to studies that already looked at this misconception, and I have plenty more studies.
As with anything, a trader can overleverage and blow up an account. Thatās true for Forex, stocks, futures and options. Also, as with anything, the lack of an effective strategy can lead to big losses as well. And of course there is the ocasional black swan.
I have posted nothing false. I have just talked about the nature of risk and limited gain from a sold option which you have now accepted . Thank you for that.
How one uses these in combinations with other options and/or underlying assets in constructing a variety of tailor-made potential v. risk scenarios is where options are in a whole new world of their own and really are a valuable asset to a trader arsenal - but the nature of the beast needs to be understood by a trader new to options and āwhat ifā risk modelling is a component of that.
But i have noted your defensive negativity towards me here so ill do as you wish and wonāt intrude any more here.
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Iām not intending to be rude or defensive. Your welcome to post, but if you are making statements be ready to back them up with studies or data based facts. If you canāt then they are simply unfounded opinions, which I donāt want here.
One of us is right and one is wrong on a number of topics, and I already posted a few decade long studies to back up my statements, so I will let the community decide.
No, that is not correct. This has not been about right or wrong, it was about apples and oranges.
I have not referred to your strategies or constructions, I was simply emphasising to @BaconSandwich that the characteristic of a sold option is unlimited risk with a maximum gain limited to the premium, and not vice versa.
That is all. That is the simple basic fact about the nature of a sold option.
Implied in my comments concerning portfolios containing short options is that the unlimited risk of those short options components is also progressive since the exposure progressively increases as the market approaches the strike price and needs to be monitored continually if one is trying to maintain a risk neutral profile. Once, and as long as, the option is āin the moneyā then the open risk (of the option, not a strategy) effectively continues on a one-to-one basis with the price movements of the underlying.
Of course, these risk/exposure/potential parameters can be, and indeed should be, modified and modelled by various combinations to take full advantage of the additional dimensions that options offer. Maybe a bit like 3-dimensional chess.
But my purpose here was only to emphasise (to those unaware) what is the actual (factual) nature of the risk v.potential of a sold option compared with a bought option.
So letās just leave it there.
For once Iām just sat here like āI know nothingā - thanks for the input both, it already sounds immensely interesting, and if not different.
Time to hit the books again, back to school for now 
Curiosity got the better of me and I ended up buying this little gem
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Thoughts to start the day:
2 weeks ago I was wondering if the market was ever going to stop dropping. Today I am wondering if it is every going to stop rising. 10% swings every couple weeks is doing me no favors. None-the-less, stick to the plan.
Currently reading up on an Iron Condor - I need more wine at this point
Iāve still not had my question answered yet, two books in, and hoping to find it soon
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Mike and His Whiteboard is all you need.
Thanks, but i prefer old school blackboards and chalk
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I suppose you draw your own charts on graph paper too, lol.
Hereās another
ha, I prefer it when the teacher throws chalk sticks at you as youāre about to drift off. Ah, they were the good old days.
All joking to one side, this option approach is a step up, right, or am I just being stupid. Itās complex sh1t with a lot of differentials.
If i want to go long at 1.1000 for a TP of 1.2000 (regardless of expectancy time frame, for a 2.1 RR) in spot FX its simple, but using options its freaking complex.
I just got into my hotel room (currently on a business trip), so I have a little of time to chat now.
Options as a product are more complex. Where as you are used to just price, options have a number of values, called greeks.
Option selling as a strategy is not complex. I find it to be one of the more easier strategies. For example, I find price action trading to be difficult. It is very subjective, finding those perfect signals, and then perfectly managing the trade in such a way to generate consistent profits is very difficult.
Options selling on the other hand can be almost completely mechanical. There may be some subjectiveness as you get more experienced and want to tweak your strategy, but overall it is mechanical. Enter a position, managing a position, and closing a position are all mechanical rules.