I have a serious question for someone who has worked at market making firm before. Speculation I suppose is welcome, but I’d really prefer an answer from someone who has worked at a trading desk and knows this answer with some certainty.
It’s clear to me after trading options for many years that the premium you pay buying options is nearly unbeatable. Time decay is just a tremendous hurdle to overcome. So the question is:
Are market makers who sell options and collect that premium, who do not have to pay the costs in covering those options, just printing money? Is selling options basically an ATM machine, if you have Wall Street kind of money and don’t have to cover them in some form?
I do realize that during some sort of Black Swan event option sellers will be punished severely. I also realize that the cost of covering options is tremendous for a retail investor, making selling them unprofitable.
But if you sell naked options, barring some sort of black swan event, are you basically the casino just scooping up the house edge? Or, conversely, is selling options just the opposite of buying them? You’ll win sometimes, you’ll lose sometimes, and without some sort of consistent strategic edge selling options is no better than buying them?
After ten years of trading options I genuinely do not know the answer to this question. Probably should have found out a lot sooner. Anyone with a little insider knowledge of selling naked options at a market maker please let me know: is selling options and scooping up premiums as a rule inherently more profitable than buying them???