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$1MM liquid -- how difficult to achieve 15% annual ROI with option writing?
- Thread starter platinum
- Start date
Quote from a529612:
So you are saying he should bet his farm on just one stock? Isn't it a bit risky with no diversification?
Never would I put all my eggs in one basket. Used MSFT as 1 example. I wrote he should put them in atleast 5 stocks. Used MSFT because it's one of the least volatile stocks in the market. MSFT also pays a 1.5% dividend. This shows that his 15% rate of return could be hit even with a stock with very low option premiums.
My question to you is: WHY?
You retired and you claim you amassed some wealth, at least sufficient to live comfortably until the bells are ringing (you claimed SEVERAL mm$). This means you probably generated this wealth with a higher ROI than 12-15%, probably through a combination of adding savings and returns from your investments through your investment advisor.
So, why would you want to get into a venture you know pretty much nothing about? I mean an understanding of options means nothing, in my opinion. Not looking down to you or anyone but it requires intensive experience to handle options profitably. Dont believe some kids here who daytrade (buy and sell) options and claim they know about options. Also, knowledge of some strategies means nothing. In order to profitably trade options you better have a DEEP understanding of the underlying probabilities, behavior of risk (not just first or second order but down to the 4th order or even more), and experience of several up and down market cycles to understand how options really behave in extreme market environments. Sorry, but its a joke as some claimed that all you need to know is how the stocks move without even mentioning the term volatility, this is ridiculous.
I warned you. You seem to like to pick up something that takes away your boredom and gives you meaning. There are thousands of other means to archive this goal. You seemed to have worked hard and I recommend you enjoy the fruits of your toil rather than getting into something that potentially takes a deep bite into your savings.
You retired and you claim you amassed some wealth, at least sufficient to live comfortably until the bells are ringing (you claimed SEVERAL mm$). This means you probably generated this wealth with a higher ROI than 12-15%, probably through a combination of adding savings and returns from your investments through your investment advisor.
So, why would you want to get into a venture you know pretty much nothing about? I mean an understanding of options means nothing, in my opinion. Not looking down to you or anyone but it requires intensive experience to handle options profitably. Dont believe some kids here who daytrade (buy and sell) options and claim they know about options. Also, knowledge of some strategies means nothing. In order to profitably trade options you better have a DEEP understanding of the underlying probabilities, behavior of risk (not just first or second order but down to the 4th order or even more), and experience of several up and down market cycles to understand how options really behave in extreme market environments. Sorry, but its a joke as some claimed that all you need to know is how the stocks move without even mentioning the term volatility, this is ridiculous.
I warned you. You seem to like to pick up something that takes away your boredom and gives you meaning. There are thousands of other means to archive this goal. You seemed to have worked hard and I recommend you enjoy the fruits of your toil rather than getting into something that potentially takes a deep bite into your savings.
Lousy strategy. What you're doing is selling an option against your stock, thereby cutting off your potential, while leaving your downside open. You may make money on stock after stock, until the one stock comes along that takes it all back.
Take a look at some of the public option writing funds. Lousy returns.
OldTrader
Take a look at some of the public option writing funds. Lousy returns.
OldTrader
Quote from a529612:
Why not do short put (cash secured) and put that extra cash in a risk free bank account earning interest instead of holding the stock for nothing?
Why should he do that and what does that archieve? He will end up with a much higher exposure to the downside than with stocks alone. He does not seem to be a high school cowboy gambling with 2000 bucks but he mentioned he retired and has amassed a larger chunk of funds.
I would just stay invested in stocks and rather try to optimize the portfolio itself. If you need money to "gamble" or "play around with" or "experiment with options" by no means, go for it, but dont risk your life savings with some securities you dont really understand.
Quote from a529612:
But he's looking at the short side and the odds are already in his favor since most long options expire worthless.
That's a misleading and debatable statistic. ITM options are often exercised before expiry. The majority that are left are OTM options that expire worthless.
There's no inherent edge to selling options - over buying options.
Quote from a529612:
But he's looking at the short side and the odds are already in his favor since most long options expire worthless.
Please, let's not start this discussion again! This topic has been beaten to death on ET.
On a different note, why are people talking about covered calls, the original poster was asking about writing options, he/she didn't say anything about writing options against a portfolio of stocks!?
15% per year is very achievable and you don't have to write naked options to achieve that. You can do it with iron condors, verticals and other limited risk strategies.
Quote from Q12:
You'd probably be better off making use of a proven CTA with a documented track record, of which there are plenty out there. If you take this route, 15% annually with minimal drawdowns is very achievable. Of course, there's always the "slim" chance the program blows up.
I'd highly recommend VN :eek: