...Add that to the fact that there are experts out there with big money who can easily afford the risks on both sides. Doesn't it stand to reason that they will drive down the price of an overpriced option?...


Of course this is true for a lot of stocks but as Ray has pointed out many times that the big money stays out some stocks basically because there isn't enough liquidity. I suppose that some opportunities may present themselves because of this.


...Obviously if it is true that selling naked options is a bad play it would be because of the rare calamity that would befall the naked seller. ...


IMO there is a big difference between shorting puts and shorting calls so I assume we're talking about shorting calls.


...But because of its rarity, meaning that the great majority of naked sales show a profit, might it not be that this widespread belief that selling naked options is positive EV, is in fact wrong?...


FWIW I don't think in general that shorting calls is +EV. I don't think options are priced that way and from my understanding market makers generally don't assume the risk of a short call, they transfer the risk and are basically involved in an arbitrage activity for lack of a better term.


...I believe we have readers out there who KNOW the right answer to this question and I hope they tell us. ...


I really don't know of any particular study but I'll try and find one. I can't prove it but I actually believe that right now there are many under priced out of the money calls in several of the big cap NASDAQ tech stocks. Again I can't prove it but I think buying slightly out of the money calls will be profitable for 2002. If I was employing such a strategy I'd go long the calls for the next month the day the previous month's options expired and buy them each month expecting to lose more often than I win but when I win it would more than make up for the losses.