Cash secured put + call?

[ET180]

But buying the stock has no margin at all. You're in it whole?

It's possible to buy stocks on margin. Here's the order for long:

Insider information about significant event -- Far OTM calls and lots of them
Very confident -- OTM to ATM calls / ATM call spreads
Confident - Long stock / ATM call spreads
Speculative - Ratio spreads, short puts, short put spreads, long stock, partial covered call (50 shares long for every short OTM call), calendar spreads, butterflies...lots of options here
Not confident, but probably not going to collapse - OTM short puts, OTM short put spreads
Really not confident -- no trade

 

[antares66]

• Just buy the call.
• Too much margin required for the put. And you only collect peanuts, not worth the risk.

„Not worth the risk“. So you generally reject selling cash secured puts? I would sell an otm put to manage the risk of a stock decline. But I am aware of the problem if the stock does not rise. Your call loses value and you have to manage the csp. For swing trading you could close the call position if there is no positive movement in the stock after 2 days. In case of a sideways movement you can keep the premium.

 

[BMK]

But buying the stock has no margin at all. You're in it whole?

Yes, of course you can buy the stock without using any margin. But that ties up a lot of capital.

You can establish a synthetic with a very small amount of cash. And the margin is based on the short put, which can be way less than what you would need to buy the stock.

I concede that this may not be particularly relevant to the original question.

BMK

 

[qlai]

I've been selling premium since 1984,

Put writing (not naked put writing) will bring in good returns as well, but you have to know how to manage the process and the risk.

Wow, would appreciate a few pointers!

 

[Jeff82]

Sure.

 

[Aquarians]

I don't know about that. I've been selling premium since 1984, and now options trading pays the bills. I understand what you're saying though. The carry on SPY LEAPs is about 650 basis points last time I looked.

What's the difference between "selling premium" and "options"? What premium did you sell if not options?

 

[Jeff82]

What's the difference between "selling premium" and "options"? What premium did you sell if not options?

An option's price is split into two parts; the intrinsic value and the time premium. The intrinsic value is the amount the option is in the money. The time premium is the price of the option over and above the intrinsic value.

If you're trying to make your money by selling premium, that means your focusing on making money from the time premium decay of the option (theta). You may additionally be trying to make money on price movement and volatility changes, but that's not your main focus.

 

[qlai]

Wow, would appreciate a few pointers!

I was not being sarcastic. Specifically, I am curious how people deal with position sizing and durations.

 

[Jeff82]

I was not being sarcastic. Specifically, I am curious how people deal with position sizing and durations.

I didn't think you were, and didn't mean to leave the impression that I did. I'm happy to give pointers.


Position Sizing:
It's hard to answer that question without understanding my strategy for covered combos. I trade as a continuous strategy exclusively on the SPY. I do spreads (primarily diagonals) on the QQQ, IWM and also trade GLD and TLT. Since I'm doing continuous rolling trades on a diversified index and am always fully invested (and using no leverage), trade sizing isn't as big an issue as it would be when I'm trading spreads, jumping from issue to issue and varying my exposure from day to day. My trade sizing is based on the number of terms I want to hit. Right now I have one sixth of my capital in each of six trades. When markets are really crashing, I might only use two positions with two day expirations.

Duration:
One of the reasons I trade the SPY is that it has intra-week expirations. Generally, in flat and rising markets I'll go out up to two weeks and falling markets I'll go to one week expirations or in extreme circumstances I'll go as short as two days. Rolling really short durations trades is a key defensive strategy. It helps you maintain the hedge ratio and take advantage of increasing IV. Mostly due to that 2020 was a good year for me. I outperformed the CBOE Buy-Write index by 1,879 basis points and had an overall return from option trading of about 17%. That's a really extreme example, but it's why I use really short expirations in declining markets.

If you're wondering why I'd ride a covered combo portfolio into a bear market, it's because I can't time markets.

Hope this helps.

 

[qlai]

Rolling really short durations trades is a key defensive strategy. It helps you maintain the hedge ratio and take advantage of increasing IV.

So does this mean you try to avoid assignment? I was under the impression that the longer duration, the easier it is to roll. You are saying the opposite? Will you roll both legs of your calendar or only the short one? Would the roll result in net credit? Sorry, lots of questions

My “fear” with premium selling at scale is that I get assigned and the income stops coming in for a long time while I seat on open losses. I get double whammy: can’t generate meaningful income and miss opportunity to buy the pull back.

My apologies to the OP for hi jacking the thread, but I think it’s all related anyway.