WHAT WE DO
The closest analogy to what we do with our options trades, is running an Insurance business. we buy options too, but that is very rare. When we have some handle on the estimated earnings.
We like it when there is panic on the street. Volatility hits the roof and premiums on options explode. This can happen on either side of the market depending on which force of human nature is at play. If FEAR is ON, you will see higher premium in PUTS and if GREED is ON, you will see higher premium in calls.
We sell those inflated Calls and Puts by creating Vertical spreads.
We have taken a lot of inspiration from some great Option Sellers the world Over, but we do not agree with them wholeheartedly. While we are completely in sync when it comes to treating Options as depreciating assets and ranking them based on their Implied volatility, we do not share their distinct hatred for other ways of making money.
For us, this is another edge to generate alpha. Infact, we pledge our value investing holdings to generate regular income via these strategies.
Second and the most important point where we disagree with conventional option selling wisdom is trades with unlimited liability.
We believe that Option selling community suffers from the Man with a Hammer Syndrome and they fail to recognize the Fat Tail distribution while over-relying on the Gaussian Distribution, treating it as a holy grail. Please click here to read our conventional views on the subject