Sell Crap & Manage Risk

Sell Crap and Manage Risk!

3 Criteria to follow when selling options (crap):

1. Massive liquidity / Tight markets / High open interest
Be the smallest fish in the biggest pond.
2. Sell verticle/time spreads 4-10 weeks before expiration. The closer to expiration you get, your theta decays faster but gama will outweigh. Gama will explode delta all over you! If you let your options expire worthless you are stupid.
3. Place verticles with 50-70% probability of success, if experienced up to 85%. Figure your probability of success by dividing the risk by the spread. For example an 80/75 put verticle with 1.80 credit and 3.20 risk would have a 64% probability of success (3.20/5.00)

*note
spread your inventory out over several strikes, don't over allocate yourself.

These notes were taken from a Think or Swim educational conference in Irvine by a professional market maker / trader.