Search results

I didn't say that I use this strategy either; just that it's a good strategy for people who buy stocks to add to whatever other strategy that they use to pick those stocks. In your scenario, just as the person who bought that stock will need to choose whether to hold or sell, so would the put...

I have a question: is is better to buy underpriced otm calls or sell overpriced otm puts? On the one hand, I expect that the effect of put-call parity causes the put option chain to be more overpriced so that the otm puts are more overpriced than the otm calls are underpriced; but on the other...

Why do you say you that look at it differently?...aren't you saying essentially the same thing?

You want the stock to gap down after you write the put as it's your intention to buy the stock on a dip. Some gaps wont bring the price all the way down to the strike price but you hope that it continues down and you get your stock at expiration. Some gaps will go past the strike price but the...

I don't think that the B-S model is predicting anything - it's simply calculating the the volatility that's implied by the market price of an option - it's the market that makes the assessment of predicted risk. My original question is asking whether the skew is caused by a flaw in the B-S...

You're misrepresenting the idea behind this strategy: it's not "Selling a put because you "wouldn't mind" owning the stock" - it's "Selling a put because you "want to" own the stock but prefer to buy the dips; and selling the put pays you while you're waiting - even if the dip never comes."...

Are you saying that the price of otm options is implying more than just the underlying security's expected volatility, but the B-S model is based on the assumption that the only factor behind an option's expected value is the volatility of the underlying? These other factors: aren't they just...

That's not the problem of this strategy for buying the stocks you want to own at a discount; in fact this strategy helps to mitigate the loss you would have incurred had you directly purchased the stock. This put selling strategy will not make poor or unlucky stock selection profitable, but it...

Yes, it's the market that determines iv; but which iv is it that turns out to be the better prediction: the otm iv's, or the atm iv's?... there is only one underlying, and the predicted iv is of that underlying - not the option - so there is only one iv that comes closest to being the...

It's the stocks that you don't think will go up that much that are precisely the ones you wouldn't want to risk having put to you. The strategy doesn't cap your returns; instead, it allows you to by stocks that you'd like to own at a discount if they dip; and even if they don't dip, you are...

I've noticed that put-call parity can be violated, but only on a fleeting basis during a sudden move - the parity always comes back. During an established long term uptrend volatility is biased to the upside, so calls have greater value than puts, as selling them represents a greater average...

Selling puts on stocks you'd like to own is a good strategy, but only if you're good at picking those stocks in the first place; In other words, it augments your stock selection strategy, but it's not a stand alone strategy or substitute for good picks. The same is true for covered calls.

So, essentially then, the models are right and the market is persistently wrong; amazing - I never thought it could be that easy to profit with options. The book mentions that even atm puts have a negative return; to my thinking, this makes sense, because in an uptrending market atm calls should...

I wouldn't be able to judge the analysis in these books; are they saying that the model is correct?... and, if so, are they explaining the skew as an aberration of the market, where some options are permanently over/under-priced? I see mention of the skew changing after the '87 crash; in that...

Is the risk really higher?...there are two kinds of risk in selling an option: 1 - frequency of it going into the money and 2 - the extent it goes into the money. Overpriced options are at less risk of going into the money, but tend to make larger moves when they do. Underpriced options are at...

I believe that GLD; TLT; and VXX are examples of fear driven securities; they tend to crash upwards, so naturally, if the skew is an emotion based market idiosyncrasy, it will be the reverse of common stocks: the calls will be used as a portfolio hedge. You're telling me what I want to hear and...

I'm familiar with the explanations as to why the iv skew exists, but I'm also skeptical that they're true, though hopeful that they are. I've heard that the otm options are correctly priced and that it's the Black-Scholes model that's defective; it makes sense: it's hard for me to accept that a...

Assuming Black-Scholes is correct, then there is only one reason one wouldn't be wise to sell as much as someone wanted of overpriced puts: money management; you can be right about value and still go broke.

or is it the result of the under/overpricing of otm options by market forces?...logic would seem to dictate that it must be one or the other;(I suppose there could also be some of both things at play, but that it would probably be one or the other hypothesized cause that predominates.) after...

I understand that dividends and borrow costs can affect put-call parity. My issue, though, is about why put-call parity is said only to apply to European style options. My other issue is that put-call IV for ATM options on non-dividend paying stocks will sometimes diverge by a large margin due...