[torkins]

I'm not saying shorting bonds/oil is like being long the market. I just picked a set of underlying assets that are much less correlated than e.g. S&P & Nasdaq. The directional choice (long/short) is really a choice of the investor. Correlations between products are not stable over time, so picking one vs the other is similar to a price bet (i.e. normally distributed). The main point is that the underlying assets are not highly correlated, and that they have liquid derivatives markets that can be used to reduce cost basis.

You may or may not make money on your directional choices, but the core strategy is to be short option premium to make your expected value positive, and to have low internal correlation amongst your assets to reduce volatility in your portfolio.

I'm not 100% sure I understand what you're trying to say re: upward bias/downward bias. However, buying options do have a negative expected value so I agree about that. Selling options is the strategy, and conceptually is similar to selling insurance. Limited profitability, positive expected value. Just like an insurance company, you keep your risk diversified to reduce volatility and keep positions small enough to prevent busting out during drawdowns.

I'm not suggesting buying options (except as part of a spread)

[ericd]

Ah ok, I see what you mean. Yeah, I meant expected value with the bias parts.

Thanks for the explanations!