Does Option writing have higher odds of profits?

31 Mar 2022

Does Option writing have higher odds of profits? Yeah, for sure, but only when risk is compared to option buying. Since max profits are limited & losses are unlimited, if the risk is not managed properly, option writing can be, eating like an ant & pooping like an elephant.

For most naked option writers, the losses in a volatile month may equal profits made over a long time period. If you’re writing options naked, risk has to be capped either in terms of capital allocated or a fixed stop loss of 1 to 5% of capital, the lower, the better.

Writing naked puts, especially in stocks, is by far the riskiest type of trade out there. Every day, there are a zillion things that could go wrong for a company—Macro & Micro. Given the limited rewards & unlimited losses, writing puts doesn’t add up in the long run.

The only way to significantly improve the odds of making money by trading options is by trading options strategies with a max loss. The odds of profiting & surviving are higher. And longer the survival, the experience gained can help become a better trader.

A good place to get started learning & trading options strategies is Zerodha Varsity and the strategies wizard by Sensibull. And… the stock market is the toughest place in the world to make easy money, don’t trust anyone who says otherwise.

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