Why do options buyers fail? Why naked buying is so hard?

Why do options buyers fail? Why naked buying is so hard?

 

Main villain for option buying / buyers is theta/time decay. It is much higher on weekly options compared to monthly Options. Even on weekly options it’s higher towards weekend/ Thursday comes closer that is expiry.

 

How to overcome the hurdles for naked Option buying?

Option strategies are best for reducing the affect of theta / time decay. Here you buy one option at a strike price and sell another at another strike price. Here greeks cancel each other.

So effectively it is defined by fixed profit vs fixed loss mostly by vertical spreads available. There are some strategies with unlimited profits or losses but they are used with caution.

 

Which strategy to use in which conditions?

We have multiple considerations to select a strategy.

 

1. Say you expect market to be stable and go up by 100 points then we can go with bull call spread or with bull put spread with 100 or 200 pts away strikes.

 

2. Say you expect market to go sideways then go with short iron butterfly or short iron condor with legs distributed as per risk appetite.

 

3. Say we expect market to go down then IV will increase and this good to go with bear call spread.

 

There are more complex calendar spreads or ration spreads etc.. But in essense it’s the bull call spread, bull put spread, bear call spread, bear put spread are simplest of option vertical spreads.

 

How to use option chain and pcr?

Option chain gives idea as where big sharks are selling options. So we can plan either selling next strike to that Or by using option vertical spread or iron condor or iron butterfly around that.