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I fully understand the P/L graphs. I disagree with your use of the phrase "unlimited downside" -- it's limited to 100% minus premiums generated over time. I also understand the original poster doesn't want to "trade", but he was certainly talking about "trading" up until assignment. I...

Please explain the difference in account damage caused by a black swan event when one is (a) long stock (b) long stock with covered calls or (c) short cash covered puts. I'll hang up and listen.

I don't think monthly 2% OTM calls are going to get exercised "a lot". They may not bank every time, but if one is willing to manage their positions, then it should be possible to buy the random ITM call back for a loss. At least now you have a loss to leverage against short term gains, and...

Because it . . . does? I brought the PUT index into the discussion to show that as an investing strategy it can be shown to be superior to B&H, CC, etc. in terms of return and volatility. Of course taxes come into play for the individual investor, but those are different situations that...

The black swan pays every investor a visit when she decides to show up. If you're fully invested long in the market and the market drops 40%, they your account drops 40%. If you're selling puts that aren't cash covered, well, that's a different story. At least recognize that the study...

He wouldn't stay in the PUT index, he is selling puts to get assigned on stocks he wants to own, right? At that point he converts to covered calls, which also outperform B&H. The excess return over B&H is taxed short term, and the rest is taxed . . . whenever it's realized.

Risk is relative.

I can completely understand not wanting to manage 70 puts at a time, and I acknowledge that tax issues must be taken into account. That said, I bristle at the ideas people often throw out about pennies & steamrollers, etc., because the math doesn't back it up. If you read the study I linked...

There will be others with far more experience than I who might quantify your opportunity costs, but I would suggest you read this study which analyzes a variety of approaches using historical S&P data. The one that in general did "the best" (based on returns, volatility, etc.) was the CBOE PUT...

I'd be curious to see what level of quick correction the more experienced traders around here build into their strategies. 20%? 30%? 50%? I need to learn a LOT more about risk management.

Thanks. I thought the theta/gamma relationship wasn't necessarily true for a position? It's hard to imagine I'm adding the numbers incorrectly.

Well, I am trying to understand the alternatives to going long on the stock. Buying the stock outright gives me no exposure to any of the Greeks. Going synthetic long in certain scenarios seemingly not only provides me the same delta but also puts time and gamma on my side. I'm trying to...

Maybe I should phrase it in the original context: With the right split strike synthetic long, it seems I can minimize volatility exposure and go positive theta. What is wrong with that approach?

OK, I'm not following. What do you mean by "soft money calls"?

Oh . . . is that saying that buying delta in calls is going to kill me when the stock rallies? What if I buy a gamma neutral position? (Understood that I might have to readjust as the underlying changes.)

Heh. Like I said, not the smartest guy in the room. I've probably patented and brought to market 1000X more than most guys around here, so I can live with that.

Oh, and on the topic of the example: I'm not trading NEM. I'm recently long there. It just had a less scary price than (say) SPY for the example.

Much obliged. I can completely buy into the notion that my definition of "cheap" is blind. I'm a weird cat -- I get the math, it's the application of the math where my mind boggles. Calculus, DE's, PDE's, whatever, I ate them up in college and career. Now, looking at an options table full...

Thanks for the quick reply. Looking at your suggestion, I would go: -- 11 NEM NEM Oct13 20 calls ($13,640) for a Delta of 1037. Gamma (12) Vega (16) and Theta (-12) would be non-zero. Capital cost is higher, and time is against me. Isn't the split-strike Vega-neutral Theta-positive...

OK, I'm rarely the smartest guy in the room, and that would definitely be the case if I were having lunch at the Quant Grille, but I'm not an idiot and I like math. I have some bona fides. So here's the deal -- I have part of my portfolio dedicated to swing trading a system that performs...