hi beating... just for future reference you can always edit/delete any post(you write) up to 30 minutes after you write it (hit the button at the bottom of the post that says edit/delete) saves writing a new one..
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Are naked puts really this safe????
- Thread starter RedDuke
- Start date
hi beating... just for future reference you can always edit/delete any post(you write) up to 30 minutes after you write it (hit the button at the bottom of the post that says edit/delete) saves writing a new one..
Quote from Jahajee:
I am happy to entertain you. We would also welcome an intelligent response to "sellers of far OTM puts" e.g. SPC 800 to 150 are reaping huge profits, as they have been doing for the past few years. Put buyers of these far OTM options are simpletons and fools who are easily parted from their money. This is a fact. Most option buyers and their money are easily parted.
Simpletons who buy them to cover a total portfolio loss in case of a black swan event. Don't you realize for every seller there is a buyer, and that buyer probably has just as good of a reason for buying as you do for selling?
It's called a MARKET.
Quote from Allspread:
Simpletons who buy them to cover a total portfolio loss in case of a black swan event. Don't you realize for every seller there is a buyer, and that buyer probably has just as good of a reason for buying as you do for selling?
It's called a MARKET.
You points taken - sure it's a market. But, ultimately, option sellers generate more profits than option buyers.
Isn't it silly to argue blindly about the appropriateness of buying or selling premium in a vacuum - without factoring in the cost of that premium?
When considering whether to buy something, wouldn't you want to know the price? Wouldn't that be a consideration? If somebody wanted to buy something from you, wouldn't the price he was willing to pay be a factor in your decision?
When complacency is way overdone and premium is at historic lows, it's probably a good buy. When panic is way overdone and premium is selling at historic highs (or at least statistically unusual highs), it's probably a good sale. In between, it's a crapshoot.
If I'm going to shoot craps, I'd just as soon go to Vegas and at least get compensated for my losses with free drinks served by busty waitresses.
When considering whether to buy something, wouldn't you want to know the price? Wouldn't that be a consideration? If somebody wanted to buy something from you, wouldn't the price he was willing to pay be a factor in your decision?
When complacency is way overdone and premium is at historic lows, it's probably a good buy. When panic is way overdone and premium is selling at historic highs (or at least statistically unusual highs), it's probably a good sale. In between, it's a crapshoot.
If I'm going to shoot craps, I'd just as soon go to Vegas and at least get compensated for my losses with free drinks served by busty waitresses.
Quote from IV_Trader:
Is your mama a whore ?
that was a good one. and this moron (riskfreetrading) actually believes that people will see him as some trading prodigy? sick and delusional is a good start. this guy is the first for me to go on ignore since January 2003!
there will always be put sellers (of which i do along with much buying) out there and the mind numbed among them who believe sellers make more than buyers. the only convincing they will get is from the market.
SELLERS VS BUYERS: WHO WINS?
A STUDY OF CME OPTIONS
EXPIRATION PATTERNS
http://app.topica.com/banners/forms/900067555/900031476/SELLERSVSBUYERSWHOWINS.doc
BY
JOHN F. SUMMA, PRESIDENT
OPTIONSNERD.COM
November 26, 2002
Introduction
Option traders rarely take into account a little known underlying fact of life about the nature of these derivative markets. As the data in this study shows, most options expire out of the money, which means buyers lose on these trades. Given this option market reality, therefore, it would behoove serious option traders to consider developing a net option selling (writing) approach to trading in order to take advantage of this tendency.
This study analyzes data compiled by the Chicago Mercantile Exchange (CME) for a special options report prepared for this authorâs recently published book, Options on Futures: New Trading Strategies (John Wiley & Sons)
Three key patterns emerge from this study: (1) on average, three out of every four options held to expiration end up worthless; (2) the share of puts and calls that expired worthless is influenced by the primary trend of the underlying; and (3) option sellers still come out ahead even when the seller is going against the trend.
In addition to sifting through the findings of the CME report, this study also discusses the relevance of the data for trading options, and suggests that traders should develop a statistical edge by employing a net-selling approach to trading.
If you have any questions about this report, or would like to request additional information regarding option-selling strategies, call OptionsNerd.com at 1-877-777-7181 and ask for Lorie Karlin.
MORE HERE:
http://app.topica.com/banners/forms/900067555/900031476/SELLERSVSBUYERSWHOWINS.doc
A STUDY OF CME OPTIONS
EXPIRATION PATTERNS
http://app.topica.com/banners/forms/900067555/900031476/SELLERSVSBUYERSWHOWINS.doc
BY
JOHN F. SUMMA, PRESIDENT
OPTIONSNERD.COM
November 26, 2002
Introduction
Option traders rarely take into account a little known underlying fact of life about the nature of these derivative markets. As the data in this study shows, most options expire out of the money, which means buyers lose on these trades. Given this option market reality, therefore, it would behoove serious option traders to consider developing a net option selling (writing) approach to trading in order to take advantage of this tendency.
This study analyzes data compiled by the Chicago Mercantile Exchange (CME) for a special options report prepared for this authorâs recently published book, Options on Futures: New Trading Strategies (John Wiley & Sons)
Three key patterns emerge from this study: (1) on average, three out of every four options held to expiration end up worthless; (2) the share of puts and calls that expired worthless is influenced by the primary trend of the underlying; and (3) option sellers still come out ahead even when the seller is going against the trend.
In addition to sifting through the findings of the CME report, this study also discusses the relevance of the data for trading options, and suggests that traders should develop a statistical edge by employing a net-selling approach to trading.
If you have any questions about this report, or would like to request additional information regarding option-selling strategies, call OptionsNerd.com at 1-877-777-7181 and ask for Lorie Karlin.
MORE HERE:
http://app.topica.com/banners/forms/900067555/900031476/SELLERSVSBUYERSWHOWINS.doc
Quote from Jahajee:
SELLERS VS BUYERS: WHO WINS?
A STUDY OF CME OPTIONS
EXPIRATION PATTERNS
http://app.topica.com/banners/forms/900067555/900031476/SELLERSVSBUYERSWHOWINS.doc
BY
JOHN F. SUMMA, PRESIDENT
OPTIONSNERD.COM
November 26, 2002
Introduction
Option traders rarely take into account a little known underlying fact of life about the nature of these derivative markets. As the data in this study shows, most options expire out of the money, which means buyers lose on these trades. Given this option market reality, therefore, it would behoove serious option traders to consider developing a net option selling (writing) approach to trading in order to take advantage of this tendency.
This study analyzes data compiled by the Chicago Mercantile Exchange (CME) for a special options report prepared for this authorâs recently published book, Options on Futures: New Trading Strategies (John Wiley & Sons)
Three key patterns emerge from this study: (1) on average, three out of every four options held to expiration end up worthless; (2) the share of puts and calls that expired worthless is influenced by the primary trend of the underlying; and (3) option sellers still come out ahead even when the seller is going against the trend.
In addition to sifting through the findings of the CME report, this study also discusses the relevance of the data for trading options, and suggests that traders should develop a statistical edge by employing a net-selling approach to trading.
If you have any questions about this report, or would like to request additional information regarding option-selling strategies, call OptionsNerd.com at 1-877-777-7181 and ask for Lorie Karlin.
MORE HERE:
http://app.topica.com/banners/forms/900067555/900031476/SELLERSVSBUYERSWHOWINS.doc
It should be noted, furthermore, that these percentages might actually be understating the severity of bias in favor of sellers. Even if an option expires in the money, it may not be a profitable trade, since the option needs to be in the money enough to cover the premium paid for the option, at which point it becomes profitable. At the same time, since sellers receive premium when they write an option, just because an option expires in the money it does not mean that they necessarily lose on the trade. For a call or put seller to lose, in other words, the option must expire in the money by more than the amount of premium received when opening the position.
If you sell an S&P 500 put option for 20 points, it must expire by more than 20 points in the money (i.e., below the strike price of the put), in order for the trade to be a loser. Therefore, the expiration data is actually understating the advantage writers have over buyers, since the data only reveals the number of options expiring worthless, not by how much in the money the options expired. Clearly, some of the exercised, in-the-money options, which we have been counted as winners for the buyers, are actually losers.
Quote from Jahajee:
Option traders rarely take into account a little known underlying fact of life about the nature of these derivative markets. As the data in this study shows, most options expire out of the money, which means buyers lose on these trades. Given this option market reality, therefore, it would behoove serious option traders to consider developing a net option selling (writing) approach to trading in order to take advantage of this tendency.
This is a wonderful example of a logical non-sequitur.
Imagine a game where two dice are thrown. At each throw, if any number from 1 through 11 is thrown, party A wins a dollar from party B. But if a 12 is thrown, party B wins $1,000 from party A.
According to the above logic, it is better to be party A than party B, since party A wins more often.
I don't know what the true statistics are. But I do know that the premise above does not support the conclusion.
Quote from c.chugani:
If I am not mistaken, what he means to say is that if the trader is assigned those puts, he would be buying the underlying at a cheaper price than if he had bought it at the price level when he first sold the puts.
Yes, that's quite true, and if i want to own something in my investment accounts i will often acquire via selling puts to enter at a very favorable price. However i don't do this leveraged and i am aware of the increased risk of acquiring assets in this manner versus outright purchase. The risk being that if the assets price should start to collapse and you own it, you can usually exit promptly with a tolerable loss, however if you hold the put naked and the underlying starts to collapse you will likely be faced with being assigned and having to take a huge loss (at least on paper) or the prospect of trying to buy the put back at an outrageous premium on top of a large loss. If it wasn't for the premium the risks of a gap down when holding the stock or the put short would be pretty much equivalent (provided the puts are very liquid), but its the risk that the premium may go through the roof that gives one pause when holding puts short. You want to be very careful and selective when acquiring stock via short puts.