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Perhaps a more pertinent question would be "is the skew justified ?" In other words do stock index distributions exhibit a kurtosis that the implied skew suggests. From the studies I've done the answer is no, they don't. In fact if you analyse 25 years of data and strip out Oct '87 the Kurtosis...

I think it's a question of leverage. By definition covered calls can't be levered, whereas short Puts can be, often with spectacular consequences.

Absolutely not. I had thought that this was precisely what dmo meant, a free lunch if you like, but alas that's wasn't what he meant. Sure a spread can be made delta and gamma neutral for any given spot, but as the spot moves so does delta / gamma. Only spread where all option moments are equal...

Thanks for taking the time dmo. Yes, you would indeed be Delta & Gamma neutral with the futures at 104-16/32. But as the futures moved away from 104-16/32 that would no longer be the case. I had it in my mind that what you actually meant was that all moments (Delta / Gamma / 3rd moment / 4th...

Given that all options have Gamma and all options have Delta, I cannot see for the life of me how you can achieve Delta AND Gamma neutral AND make a decent profit ??? The only spread I can think of that would achieve Delta/Gamma neutral is a box. But then that would only earn the risk-free...

Fascinating. Sounds like a licence to print money. How on earth do you stay delta AND gamma neutral ???

Nothing wrong with selling naked Puts, it's the abuse of leverage that kills, not the strategy. The amateurs here think "how much can I make selling Puts ?" Professional here think "how much can I lose selling Puts ?". Stands out like a soar thumb who's who on this thread !

Hi Mark. First of all my post was in response to your original Q below:- The words that caught my attention here were profitable / consistent / monthly income. Words (for the uninitiated) that are normally associated with selling Puts. My point… by way of example…is that what at first...

If you are selling Puts your monthly P/L maybe something like this +$ 5k +$5k +$ 5k +$5k +$ 5k +$5k +$ 5k +$5k +$ 5k +$5k +$ 5k -$55k. If you are buying Puts your monthly P/L maybe something like this -$ 5k - $5k -$ 5k - $5k -$ 5k - $5k -$ 5k - $5k -$ 5k - $5k -$ 5k +$ 55k. In the example...

Don't mean to sound facetious but.....it depends which way the underlying goes :)

iloveoptions Thanks for your detailed reply. I had assumed that you "mechanically" scalped whenever a pre-determined delta was reached, and I was curious as to how you determined the delta trigger. I have operated a few gamma scalping spreads with index straddles (adjusting with futures)...

Probably not a good example in terms of detail, and obviously vol skew would feature in deciding which strikes use. But the example holds good in highlighting the how path and expiry affects each position's profit / loss. I would also prefer the spread too.

iloveoptions At what Delta limit do you adjust ? Any why that Delta limit ? Andy You could adjust any spread to delta neutral, but in the context of "gamma scalping" the long straddle is the most suited spread.

None. There is no fundamental difference between trading index rather than stock options. Providing all of the stocks in a particular index have options, you can replicate any index Put or Call by opening a basket of stock options weighted according to their weight in the index of which they...

Even assuming that your stop is executed satisfactorily, neither trade has any advantage over the other, although they are very different. In the case of the long Call + stop, the P/L is dependant on the path the underlying takes, whereas the spread P/L is dependant only on the underlying at...

Selling naked Puts in and of itself carries no more downside risk than owning the same quantity of stock outright. It is the abuse of leverage that causes of wipe-out, some quite spectacular, see LTCM.

OTM, near month. Welcome !

European style equity calls can trade below intrinsic where a dividend is due prior to expiry. For example, Spot 500 Dividend due 25 Dividend paid 1 week Options expiry 2 weeks 480 strike call could priced at 5 American style options however, will never trade below intrinsic.

Gamma is the opposite side of the coin to Theta. If you are long Gamma you must be short Theta, and vice-versa. This is very basic stuff, and I humbly suggest you do some reading and study before trading options.

a529612 The rationale is that the delta is a measure of risk, whereas the value of an option is not. If the risk is low (Delta <0.30) I'd let them run, if the delta is high (>0.80) I'd do something about it (either close out or leg / roll). In other words, let winners run and close...