consistent income
- Thread starter mark trader
- Start date
And adjust to changes in volatility over time. Vols in 2005 are not the same as vols now so same strategies blindly applied will not work exactly the same.
This is misleading, i know what you are trying to say and agree but the wording is incorrect.
A covered call implies you are holding the underlying along with the short call contracts.
A naked put implies you are only holding the short put contacts.
Someone with an $10000 account, may buy 1000x $10 share underlying, then sell 10x call contract. OR based on the statement he may mistakenly also think he can instead sell 50x naked put contract by using the same $10000 as margin. Since the risk should be the same right?
This is clearly not the case.
Covered calls and naked puts with enough cash in the account to cover the assignment are EXACTLY the SAME
If you're trading butterflies with extra cheap far otm calls/puts, the purpose of the extra calls/puts isn't to hedge anything. The butterfly is already a hedged position. The extra calls/puts are meant to take advantage of the rare but potent runaway moves in either direction. I would look upon the position as primarily a range bound strategy. B/w the butterfly and the otm kickers is a fairly large loss spot, and the otm kickers normally won't kick in meaningfully until a really significant move. It's not really a position you can slap on and hope for the best. More likely it's one you trade into over time.
st
Charles uses the slingshot hedge for a married put position. One buys the stock and buys enough puts to protect the stock (aka synthetic call). To fund the cost of the puts one sells OTM call credit spreads. For example, say you're long 1000 AAPL and long 10 180 strike puts, i.e. synthetic long 10 180 strike calls. You then sell 20 otm AAPL 200/220 call spreads. This gives you 10 butterflies (180/200/220) with an extra 10 long 220 calls (the 'call kickers', lol).
That's it.
db
True. However, some traders buy the extra long calls to create a more delta neutral position when they initiate the trade since most atm butterflies start off short deltas.
db
Another potential use is buying FLYs to be short vols when vols have spiked. The goal is for vols to collapse and the FLY increase in value. Sometimes the potential after vols spike is for a large move and I have seen positions where some extra wings are added to either profit if the underlying moves out of the FLY profit zone or hedge it a little more. You cannot add too much on the wings or you end up moving to +vega. I will see if I can find an example.
Then buy a put and ride it down.
The trend is your friend.
You don't have to be psychic to make money, you just have to know what the trend is, what your goals are, and what the risk/reward is for various bullish and bearish strategies. (ie - should I buy the stock, write a put or sell a call when I'm bullish?)
Don't read anybody's "get rich" book. And don't buy the courses or subscribe to picks. And most of all, filter the negativity on these boards out.
Create the strategies yourself. Just study the fundamentals of the market and the various derivatives, and ask yourself questions, and work out the answers.
THEN read the books and you'll know pretty quickly who is full of nonsense and who is useful.
If you are selling Puts your monthly P/L maybe something like this +$ 5k +$5k +$ 5k +$5k +$ 5k +$5k +$ 5k +$5k +$ 5k +$5k +$ 5k -$55k.
If you are buying Puts your monthly P/L maybe something like this -$ 5k - $5k -$ 5k - $5k -$ 5k - $5k -$ 5k - $5k -$ 5k - $5k -$ 5k +$ 55k.
In the example both strategies sum to zero and my point is that consistent or sporadic matters not. Selling Puts is like going up an escalator and down the shoot, opposite for buying them.