Gambling in the US is a $91 billion industry, and that is just the legal side, estimates are that there was between $80-100 billion illegally wagered on sports last year.And who is making all that money? Certainly not the bettor. No, only half the bettors can be winning at a
time and the best of the best sports handicappers are only correct 55% of the time.No, the people raking it in are the casinos and online sports books. Why? Because it doesn’t matter to them who wins.They take their share out of the middle. Every bet placed pays them.They are in a position to win every time because they have put the odds in their favor.The odds always favors the house. That’s why they are THE HOUSE.The house doesn’t win big. It doesn’t need to. It just wins consistently. The bookie is happy to take a reliable 10% off the top every time.As a Stock Market Bookie I am selling to option buyers, who are usually gamblers looking to hit it big. I say usually because there are also sound reasons to buy options and institutional investors do it all the time just for the insurance it provides. Either person will work for us though, as all we want is our 10% out of the middle.With close to 80% of all options expiring worthless we know we have the overwhelming odds on our side and we are going to use that like a hammer to beat our fortune out of the market.If my calculations are correct then these options will expire worthless and I will keep the full premium. If for some reason something happens and the options are in the money at expiration I will be responsible for paying the buyer the difference between the strike price and the closing price. But don’t worry, because we already know that this happens less than 20% of the time and that’s before we apply any adjustment or thinking to which options we are selling.In other words 80% of the time we will collect the full premium and less than 20% of the time we will be responsible for dealing with and absorbing some loss.Please don’t let anyone sell you anything that they claim never loses a trade. That is just stupid. Bookies lose bets every day and casinos lose hands of blackjack all the time.You don’t need to worry about the losses with this strategy because a) you know they are coming and b) you know you are going win at least 4 out of 5 times.Now here is a hard truth to deal with (and a lesson I have had to learn the hard way): picking the right options to sell takes practice and you need to know what to do when a trade goes against you, that is, you need to know when the odds are turning.Bookies do this all the time – if there are too many people betting on one side of a game, leaving them exposed for a potentially huge loss, they adjust the betting line or the odds to make the other side more attractive – all they want is to be in the middle.That is all we want – we are going to be attentive at all times to where the odds are and if we need to we will adjust so that the odds stay on our side.Obviously selecting the correct stock to begin with makes an enormous difference. Just like a bookie needs to be able to set the line accurately or they’ll get burned, we need to be able to pick the right stock and option combo in order to assure the odds stay on our side.