[widebody911]

Remind me again how this isn't just a glorified form of gambling?

Originally Posted by trader220

Most mutual funds cannot use options as written in their own mission statement.
You can always short options, anytime you buy a call or a put, someone had to sell it to you and therefore they are short that option.

Options are not necessarily a zero sum game, here is an example. You buy a call option on XYZ from me. XYZ then goes up in price and your call option goes up in price. You sell the call option before expiration for a profit. You don’t have to sell it to me you sell it to the market. I am still short that call and xyz now falls in price and thus the call falls in price and then I cover it for a profit. Or, you buy the call from me and I am now short the call but I hedge with either another call or the underlying stock.

Spreads are simple ways to limit risk and many many many retial investors / traders use them to consistently add gains to their portfolio. Straddles are a lot different and I would say that if you simple buy a straddle or short a straddle and then sit and wait its not going to be easy to make money. Straddles are implied volatility plays (vega plays) they’re not buy or short and hold plays. Long straddles give you the ability to trade the net positive gamma buy buying and selling the underlying when it moves. Shorting a straddle also needs to be hedged accordingly when the underlying moves.

As far as the markets go, just about all the options markets are electronic these days which means the trades are just setting their pricing parameters and their computer is spitting out the bid and offer. They don’t really care where the underlying stock goes since most firms are running what’s called a dispersion portfolio where they trade the implied volatility in the options vs. options on other stocks in that sector or index options.