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I know we talked about options in

By: Java



The past and Studio City claimed that the house always won and it was a loser's bet.    Talking selling naked puts here.  

 

I just disagree.  The more I evolve my thinking.  And granted.  I am self taught.  I am not losing here.  

 

OK, so let's make something up.  I sell 10 options of Alibaba right?  I am fabricating this.  It will be January 2020 at $140 a share and I am being paid $10 a share.  Right now Baba is at $165.

 

I can win one of 3 ways.  

 

1) Shares stay above $140 a share or even within $10 of $140, stay above $130 and technically I win.  Yes?

 

2) Since I don't really want to buy Baba, let's say the stock in December hits $135 a share.  and the put option now has gone from $10 to $6 because of the time factor yes?  Time is our friend.   So i can now simply buy it out at $6 a share or wait right up until the final week and maybe buy it out close to $5 a share (difference between strike price and actual stock price).  And THEN sell 10 more options in say, June, for $125 a share.  Get $5 a share for them.  And if Baba stays above $125 then I win there.  Meaning, I have multiple opportunities to win here.  Market goes up more than down, so odds are, time is my friend.  Play that game enough times and I am bound to win.

 

3) Let's say that doesn't work because the price has fallen dramatically.  Let's say it fell to $125 and buying it out will cost me $16.    I am obligated remember to 10 puts, 1,000 shares.  I can then say ok, don't want to use time as my friend.  I will buy out my 10 at $16.  I will then sell 40 at a strike price of $123 for say, $4 a share  Meaning, I have taken on 4 times the risk but lowered he target price and broken even on the cash balance part of the trade.  The stock stablizes, or even goes back up, never hitting $123 and since I have not moved the strike date, it comes due fast and I escape that jam.

 

Seems to me that I can win in any of those 3 scenarios.  And I can play the game over and over and over.  I have tested this and done it.  I don't consider myself an expert and may even be using wrong terminology.  And once in awhile I get slammed.  I got stuck buying BIDU at $150 when is dropped to $115.  That sucked.  But I win on this stuff about 90% of the time.  I am up this year about $200,000 on this and this is just a hobby.

 

Am I wrong or right in my thinking here and if I am playing with fire and only benefitting because of a certain market, can anyone set me straight?  i say that because it's kind of been nice not having any houshold expenses and free vacations paid by this for the last year or so.  Son's tuition covered too.  lol

 

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