collecting premium / cashing out

[optionnew]

Quote from atticus:

I DK on the losing trades by blaming my assistants for unauthorized access to my trading accounts. Works like a charm.

Yeh, that's part of the risk of selling naked puts.

 

[newwurldmn]

Quote from atticus:

I DK on the losing trades by blaming my assistants for unauthorized access to my trading accounts. Works like a charm.

I tell the brokers that I meant to buy instead of sell. They generally agree with me and change the trades.

 

[optionnew]

Quote from newwurldmn:

I tell the brokers that I meant to buy instead of sell. They generally agree with me and change the trades.

Is the broker MF Global mabye?

 

[newwurldmn]

Quote from optionnew:

Is the broker MF Global mabye?

Ha. It's true. I sold them 44 billion dollars worth of puts that I myself had intended to sell.

 

[spindr0]

Quote from syd697:

The main thrust of my chapter on put selling on stocks is to choose stocks that you'd be comfortable owning if the stock happens to fall down to your chosen strike, and possibly even below the strike price. Stick to quality stalwarts that you think will eventually give you upside returns.

No strategy is infallible, even put selling, and I never said that there were no risks involved. But if you don't overleverage and only stick with stocks you like, the strategy could be rewarding.

And yes, the money you receive from selling options will only be captured if the option expires worthless or you buy it back cheaper than what you sold it for.

I truly believe that selling options can give you an advantage over buying options as long as you have a general idea about where the underlying stock will go, and you choose out-of-the-money strikes. This gives you at least a cushion against faulty analysis on the stock, or just general bad timing. Choosing out-of-the-money strikes allows the stock to fluctuate normally without scaring you out too early. But of course you can never protect yourself against stocks that gap down 15 points overnight, but that risk is the same for everyone.

That's a good explanation of selling naked puts - applicable for the "investor" type who seeks to acquire equity at lower prices while generating current income. Good job.

You did mention avoiding over leverage. It should be emphasized heavily because many noobs interpret premium credit as free money. It should also be emphasized that it's a lousy strategy in a bear market.

 

[spindr0]

Quote from konviction:

I'm trading sim so there is no risk and I'll only ever learn by doing and making my own mistakes.

Selling puts I'd think in many ways is like starting an insurance company. You bankroll it will your own millions, and a few years later a tornado rips though your town and puts you out of business. There is unlimited downside risk, but how often do you read about insurance companies going bankrupt?

If I can amass billions before going bankrupt, I could live happily ever after.

I realize that it's hyperbole but in order to amass anything significant via selling naked puts (billions), you're going to have to sell strikes a lot closer to the money, do size (over leverage?), and have some degree of success in your timing and selection. Because of the proximity of strike to UL price as well as size, you're more prone to blowing up, especially since you're not starting with millions. And yes, insurance companies do go bankrupt.

 

[iceman1]

.... looks like those naked puts should perform well in your paper trading acct. today... ! can't believe we had this discussion over a demo account.

LOL

 

[atticus]

Quote from newwurldmn:

I tell the brokers that I meant to buy instead of sell. They generally agree with me and change the trades.

Wow, that's a game-changer!

 

[spindr0]

Quote from newwurldmn:

I tell the brokers that I meant to buy instead of sell. They generally agree with me and change the trades.

Why make life so complicated? Just get a #2 Madoff pencil and change the - to a + on the monthly statement.

 

[newwurldmn]

Quote from spindr0:

Why make life so complicated? Just get a #2 Madoff pencil and change the - to a + on the monthly statement.

Yeah. Of course. For the Other People's money accounts.

But for my own accounts...