Off late there has been a war like situation between the so called smart guys (Sellers of options) Vs dumb people who are happyily referred to as options buyers. I mean seriously, for every buyer there is a seller. Then how come one side of the coin is going to be bad and the other will be good, in fact I have realized people take it so seriously that they want them to referred as a buyer or seller.
Now why options selling is not bad after all, for a simple reason, You have odds in your favour. Options are decaying asset and with time they are likely to lose their value (time value, theta)
Then why are so many retail traders looking to buy options, because it’s cheap 🙂 And it’s like lottery, if it works out you have mind boggling risk reward. But then there are obvious risks, like what if underlying does not move, what if volatility goes down.
After spending about 14 years on the street I have come to the conclusion that both sides have their merit and demerits. Don’t get hooked to just one side, in different market types different strategies work.
In the current fall if you were a seller of options (naked) I am sure you would have definitely had a difficult time managing your positions. Cause along with markets moving so fast, volatility was also hitting the roof. But then from 2016 to 2019, Options Sellers ruled.
Again even if you are an options buyer, could you simply buy at any price? The answer is NO. During march 2020 ATM PE were quoting above 500 Rs on Nifty, and day to expiry was just 2. Now can you imagine you needed 500 points to move just to make money on Expiry day. It was momentum which was favouring but then pricing was definitely absurd. Then why is there a camp who would like to call them self sellers and buyers particularly.
I think you have to understand that if you are trading momentum, buying options makes sense. And If you are selling options with proper hedge (strategies) that’s also a great way to consistently generate return. In a longer run both are simply strategies, when IV is low Options Buying makes sense and IV’s are high options selling is also not a bad idea but with proper hedge.
One more factor which matter is what is your risk capital
-> Higher Capital, Lower Risk – Market Neutral Strategies (Risk Defined)
-> Higher Capital, Moderate Risk – Undefined strategies on one side
-> Higher Capital, Higher Risk, – Undefined Strategies
-> Smaller Capital, Higher Risk – Naked Options Buying
-> Smaller Capital, Moderate Risk – Risk Defined Options Strategies
So in conclusion, I Prefer not to be a part of any gang 😉 Be an opportunist whatever is the market type change your stance accordingly.