The Complete Guide to Option Selling, Second Edition

Executive Summary

James Cordier and Michael Gross present a comprehensive blueprint for selling options on futures contracts, arguing that option sellers have an inherent statistical advantage since 75-80% of options held to expiration expire worthless. The book covers the full spectrum of option selling, from basic concepts and futures fundamentals through advanced strategies including spread construction, seasonal analysis, and portfolio management.

Core Thesis

The conventional wisdom that option selling carries "unlimited risk" has scared most investors away from the most consistently profitable strategy in futures markets. By selling far out-of-the-money options on commodities with sound fundamental and seasonal analysis, traders can build portfolios with high probability of success, regular income, and manageable risk through proper position sizing and spread strategies.

Chapter-by-Chapter Summary

Part I: Selling Options - Why and How It Works (Chapters 1-4)

• Chapter 1: Why Sell Options - The statistical advantage of option sellers
• Chapter 2: A Crash Course on Futures - Basics for option sellers
• Chapter 3: Buying vs. Selling Options - Why selling is superior
• Chapter 4: SPAN Margin - The key to achieving high returns

Part II: Option Selling Strategy and Risk Control (Chapters 5-9)

• Chapter 5: Strike Price and Time Selection - Choosing optimal parameters
• Chapter 6: Use and Abuse of Spreads - When spreads help and hurt
• Chapter 7: Recommended Spread Strategies - Specific spread configurations
• Chapter 8: Liquidity, Order Placement, Assignment, and Limit Moves
• Chapter 9: Risk Control in Option Selling - Managing the tail risk

Part III: Market Analysis and Option Selling (Chapters 10-15)

• Chapter 10: Fundamentals vs. Technicals - What matters for option sellers
• Chapter 11: Key Fundamentals of Select Markets
• Chapter 12: Seasonal Analysis and Option Selling
• Chapter 13: The Best Markets for Seasonal Option Sales
• Chapter 14: Volatility Simplified
• Chapter 15: Structuring Your Option Selling Portfolio

Part IV: Getting Started (Chapters 16-19)

• Chapter 16: Mistakes New Option Sellers Make
• Chapter 17: Finding a Good Broker or Money Manager
• Chapter 18: Option Selling as an Investment
• Chapter 19: Pulling It All Together

Key Concepts

1. Statistical Edge: 75-80% of options expire worthless, favoring sellers
2. SPAN Margin: Understanding how exchange margin requirements create capital efficiency for option sellers
3. Seasonal Analysis: Using historical commodity price patterns to identify optimal strike prices and timing
4. Spread Strategies: Using credit spreads to define risk while maintaining premium income
5. Time Decay: Theta as the option seller's greatest ally

Critical Assessment

The book provides an excellent introduction to option selling as a strategy. The seasonal analysis sections are particularly valuable. However, readers should note that James Cordier's firm, OptionSellers.com, later suffered catastrophic losses in natural gas options in 2018, ultimately losing all client funds. This real-world outcome serves as a sobering reminder that even experienced option sellers can face devastating losses from tail risk events.

Key Quotes

• "Fear and greed - fear of risk, fear of the unknown, and most important, fear of that which is not understood."
• "Humans are cursed with the emotion of hope when involved in an investment situation."

Conclusion

Despite the cautionary tale of the author's later fund failure, "The Complete Guide to Option Selling" remains a valuable educational resource on the mechanics and strategy of option writing. Readers should absorb the educational content while giving extra weight to the risk management chapters.