time value erosion

  • Premium Collection; AKA Short Option Trading

    There are advantages and disadvantages to every commodity trading strategy, but Options Erode Over Timein my opinion, option selling delivers the best overall odds of trading success.

    The favorable probabilities are due to the simple fact that options are priced to lose, and time is on the side of the option seller.  To illustrate, an option buyer must see the market move in the desired direction, in a minimum magnitude, in a finite time frame, in order to see a profit. Option sellers, however, have far more room for error and can even make money when moderately wrong in regard to futures market direction.  With that said, there is no such thing as "easy money" in the commodity markets. Successful commodity option premium collection requires proper risk management, keen instinct, patience and even a little bit of luck.

    *There is unlimited risk in commodity option selling!

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