Also I have not been able to figure out. Why not sell credit put spreads if you just sell the put the margins are high tying up cash and you have the tail risk. If you do a fairly wide spread of OTM risk is capped?
Anyone selling premium only
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Also I have not been able to figure out. Why not sell credit put spreads if you just sell the put the margins are high tying up cash and you have the tail risk. If you do a fairly wide spread of OTM risk is capped?
Others have debated this. I prefer selling naked puts generally because I would not mind owning the company stock at the strike i sold. Most people would counter sure sure, but would you like PG at $45 when you sold the put at $55? Answer is still yes stock would have gone from $75 to $45 and unless out of the blue their products are obsolete overnight, they could buy back enough stock to bring up the value. If you did not want to be in it at $55 you could roll your puts out and down. Book the loss, sell a further down strike say $35-$40, further out in time.
I am also assuming you use portfolio margin which does not penalize you so much for selling naked puts as long as you do not concentrate your positions. IB requires a little over $100k for portfolio margin.
Also with put spreads you are selling a lower volatility strike and buying a higher volatility strike to create a bull put spread. So in essence you are selling cheaper volatility and buying more expensive volatility (assuming a standard skew with lower priced puts with higher vol) to initiate the spread. You keep less and now can lose $10 for every $1 you take in.
Again, do it on stocks you could own that are less prone to going to zero. Put spreads would be better suited to HLF (could very well go to zero) even though you are a seller of cheaper vol to buy higher vol that company could be shut down, whereas WMT not very likely.
If not using portfolio margin then spreads may be your only realistic option until you get higher balances. Whatever you do, do not over-concentrate, over-leverage, spread it out among companies, strikes, months. That is just my opinion for others concentration and leverage make them seven figures regularly, that's just not for me.
I am also assuming you use portfolio margin which does not penalize you so much for selling naked puts as long as you do not concentrate your positions. IB requires a little over $100k for portfolio margin.
Also with put spreads you are selling a lower volatility strike and buying a higher volatility strike to create a bull put spread. So in essence you are selling cheaper volatility and buying more expensive volatility (assuming a standard skew with lower priced puts with higher vol) to initiate the spread. You keep less and now can lose $10 for every $1 you take in.
Again, do it on stocks you could own that are less prone to going to zero. Put spreads would be better suited to HLF (could very well go to zero) even though you are a seller of cheaper vol to buy higher vol that company could be shut down, whereas WMT not very likely.
If not using portfolio margin then spreads may be your only realistic option until you get higher balances. Whatever you do, do not over-concentrate, over-leverage, spread it out among companies, strikes, months. That is just my opinion for others concentration and leverage make them seven figures regularly, that's just not for me.
Thanks understand this perfectly and like this. However own no equities, wonder how I can begin with 25k. Maybe need to talk to brokers...
The strategy i outline is best suited for portfolios of $200,000 plus, otherwise since i'm aiming for 10% per year that return with smaller amounts is a waste of time for most people.
If you can pick good stocks that could rebound from falls maybe call spreads would work for smaller amounts. Perfect example was WAG when it went from $40 to $29, bought a leap 2014 30-40 call spread. Do that with $25k over and over you will be up to $250,000 in no time flat. I did a call spread and sold leap puts (exp 2014/2015 at $25 strike) down at that level because WAG was getting stupid cheap. I mean i don't know why anyone shops there, their prices are silly high, but people picking up prescriptions do.
It's back above $40 now, that is the power of leverage. for about $2 you could clear $8 on the $10 price strike distance. that would put you around $100k in equity if you had thrown all your capital into that. only needed WAG at $32 by jan 2014 to break even too.
Downside is obvious below $30 by jan 2014, $25k is gone.
If you can pick good stocks that could rebound from falls maybe call spreads would work for smaller amounts. Perfect example was WAG when it went from $40 to $29, bought a leap 2014 30-40 call spread. Do that with $25k over and over you will be up to $250,000 in no time flat. I did a call spread and sold leap puts (exp 2014/2015 at $25 strike) down at that level because WAG was getting stupid cheap. I mean i don't know why anyone shops there, their prices are silly high, but people picking up prescriptions do.
It's back above $40 now, that is the power of leverage. for about $2 you could clear $8 on the $10 price strike distance. that would put you around $100k in equity if you had thrown all your capital into that. only needed WAG at $32 by jan 2014 to break even too.
Downside is obvious below $30 by jan 2014, $25k is gone.
I've have always found the logic of selling an OTM put in a stock you like flawed, when you say you would be happy to buy it at a discount. If you like XYZ trading at $100 and sell the $80 put going out 6 months with this logic, there is one issue. If the stock trades down below $80, it's not the same company or not the same stock market. Something has changed for that stock to be trading below $80. You might find the same stock that had good growing earning during an up market is now having problems and you might think it's now a better sale at $80.
I still like selling options, but I always have a stock price that if it goes through that , I have to assume I was wrong. Never let a bad trade go on forever. I watched traders do that in C, BS, LEH, etc, just to name a few.
I still like selling options, but I always have a stock price that if it goes through that , I have to assume I was wrong. Never let a bad trade go on forever. I watched traders do that in C, BS, LEH, etc, just to name a few.
downside was risky tho.
I was thinking SP futures, put spreads with a 10 percent drop in the sp as stop point, or a predetermined max loss of say 1.5 times the credit spread..
Again, pick companies that will not be obsolete within the time frame you pick. You mentioned only financials that were potentially levered up 30-1. Would WMT, PG, KO suffer anything close to that? They have absolute fundamental value that banks do not (other than the banks cash on hand which isn't always their cash).
If PG goes from $75 to $45 or $35 and i'm short a put at $55, PG will buyback stock, raise the dividend and improve their competitive position in the market. They are not static and stupid people, they know their markets, their market is not high-tech and ever changing like FB or CSCO, INTC. They can adapt and respond within a reasonable amount of time without the threat of absolute obsolescence on a global scale.
I just cannot compare WMT or PG to C, or anything other bank the risks of just not the same (2008 proved it). Who would you rather own through a depression (besides the obvious alternative of neither) WMT or WFC?
+1. The other strange argument is: sell puts in names that you would like to own anyway. If you would like to buy them then presumably you think there is upside. You should be long them now instead of selling puts.
The only reason to sell a put is because you think the market is overpricing the likelihood that the stock will get to the strike price.
Everything is risky.
I just am giving my opinion. If i had $25k i would focus almost exclusively on buying call spreads. I would study and wait for quality companies to reach reasonable levels and do maybe 5-10 independent call spreads on them.
Risk is losing everything, on each one of the trades.
But if you lose a little (10% down stoploss wow) and get stopped out 5 times in a row on SP futures you risk losing everything as well, just takes a little longer i suppose.
The risk/reward on that WAG at $29 was so compelling that when someone like myself who does 90% of my trading from the shorting put side does a call spread it must have been decent. Breakeven at $32? within a year? at $41 within 4-5 months? i predicted the move, but not the speed of it.
This market is too bullish. Look at how the market brushed off seriously negative situation in YUM. It could take many quarters to get back chinese consumers to KFC stock recovered in couple days, no problem mr market says.
learn all you can and sit on the sidelines for a while, this market is too bullish. I'm flat, booked profits and will watch for now.
Guys that can pull $50k out a year trading sp futures on $25k deposit are impressive. I cannot match them, i will not even try.
I don't think they are lying. I just think they are in the top 5% of traders and I am not.