[dixonge]

You seem to be discussing mainly price. I'm not trying to beat the average bid/ask spread price. I'll leave it to the market makers to arbitrage those things, I just put in a limit order for a price that meets my minimal demands and let the order fill as the prices move toward my position. I've gone 2-3 days working on that price before, but most often I adjust till I get a hit. Either way, it most often is the difference between taking in a credit for a 4.5% gain or a 5% gain.

Let me propose a theoretical trade scenario. For me to sell a July 780/790 bull put credit spread someone somewhere else has to be willing to *buy* a 780/790 put debit spread. (I think I have that right).

The market maker makes money on the bid/ask spread, the brokers make it on commissions, and both sides of the trade have supposedly good reasons for the purchase. I'm betting on the SPX to stay above the 780-something breakeven, the other side is betting on going below.

However, long before expiration day the other side could sell for a profit. Say they bought when the S&P was at 920 and it falls to 850. They sell, take their profit. In the meantime the S&P levels out and my spread expires worthless with the S&P at 840. I keep my credit, the other side keeps their profit. The market makers and brokers keep their money. I don't see where this requires a winner vs. a loser or a pro trader vs. a sucker.

This reminds me of when I first started exploring options. Most of the textbook explanations seem to assume that one will always hold an option to expiration and base all their greeks and risk calculations on that assumption. The day I figured out that I could use money management and stop/loss techniques to simply sell my winners at a profit (before expiration, before assignment) was an epiphany. I could sell losers too, capping my losses. It makes the theory and fancy curve charts rather irrelevant, IMHO.

FYI, I'm quite enjoying this discussion btw. If I can't somewhat defend my strategy in the public forum I'd have no business doing it, right?

Quote:

Originally Posted by ERD50 But the "market" for these is not made up of one or two people. Even when there are few transactions, computers are monitoring that bid/ask in near real time and will jump in to buy/sell any imbalance before your fingers can hit "ENTER". Liquidity and supply/demand for options is fundamentally different from that of stocks. Because options do have an underlying component, the bid/ask (not the latest trade) will remain in lock-step with that, at least on liquid underlying components, like indexes. It makes no difference what reason people buy/sell things - the market determines the price. Potatoes are $X/# at the grocery store - they don't care if I buy them to feed my family, or cut them up until I find one that looks like some celebrity and sell it on ebay for $1M bucks. And I don't offer the grocery store more than market price, just because I hope to make more. I pay what the market bears/demands, regardless. -ERD50