/biz/ - Business & Finance

>>24633605
Options are preferable to trading shares of an underlying in terms of an actual trade. They are not an investment since they are a decaying asset (as in a long term investment). If you're looking to trade for profitability and are looking for something consistent, options are really the only way to go about that. To be put very simply, we sell contracts that have a statistically proven probability of expiring in our favor, and these contracts have a high IV value which values the contract more so than if it had a low IV value. So we sell a contract for more premium than usual (High IV), and the contract only has so long till it's worth nothing so as time passes we collect premium on the contract since we can now buy it back at a lower price since it's decayed in value if we so choose, cash flow really from a depreciating asset we're short. The risk profile is different if you're short / long the position. If you're trying to avoid exposure and undefined risk, you can create a vertical spread (preferably short) or an iron condor making it a defined risk trade. The risk is really more manageable since you can define your max loss / max profit and your true probability of profit (which you can pick, %10,%30,%40,%60,%65,%70,%80...etc). All of this allows you create a mathematically proven (backtested) calculation of what your trade will likely turn out to be. With this, you can manage trades early to increase your probability of profit from a 70% POP (probability of profit) to 83% for example since you're not letting time play out completely, you're adjusting the POP based off of time in your favor. That can be explained with a graph for a visual aid. It's always easier to explain over a 2 hours discussion really.