Consistent way to make money

[makloda]

Quote from Wayne Gibbous:
Unless you have some edge with the BW timing, it's a good way to underperform just buying the SP500.

I think it's the other way round, at least over a complete market cycle. In a run away bull market Covered-Call-Writing will of course always under perform!

Both Covered-Call-Writing the SP500 and Naked-Put-Writing historically showed favorable risk adjusted returns over plain buying and holding the SP500, including dividends. The CBOE launched a put write index recently: http://www.cboe.com/micro/put/

Over the last 20 years (June 1988 to the end of April 2007, note how they cleverly left out 1987 ), selling naked puts yielded a ROR of 12.6% with a volatility of 8.3%. Covered Calls reached a ROR of 11.8% with a volatility of 9.2%. All this compares favorably to the SP500's ROR of 12.1% and volatility of 13.7% (!). One idea would be to leverage the naked put selling (or covered call writing) e.g. by a factor of 1.5x which would then (historically) more clearly outperform the SP500 on a ROR basis with around the same level of volatility.

 

[TrueStory]

"Automatic money" LOL

 

[Wayne Gibbous]

Quote from makloda:

I think it's the other way round, at least over a complete market cycle. In a run away bull market Covered-Call-Writing will of course always under perform!

Both Covered-Call-Writing the SP500 and Naked-Put-Writing historically showed favorable risk adjusted returns over plain buying and holding the SP500, including dividends. The CBOE launched a put write index recently: http://www.cboe.com/micro/put/
.

I agree it's close. And on a risk-adjusted basis, it probably does outperform buy/hold a bit.

But after commissions, taxes and hassle (and the missed opportunities from not using the margin for swing tradin'!) it doesn't seem worth it when there are so many other ways to make a buck. At least not for me.

 

[MajorUrsa]

Quote from Optionswriter:

For example, I bought stock at $6.5, write calls at strike $6.25 and get 33 cent premium per stock.

My maximum profit is 8 cent per share (33 premium - 25 cent). The downside protection given is substanitial as my new breakeven point on share purchase after writing the option is $6.17 ($6.50 - 33 cent)

You understand the numbers, good. But, just for the sake of clarifying this discussion, you would be comfortable with selling 6.25 puts?
It is very important, both in trading and in discussing this strategy that you are aware that you sold those puts.

Ursa..

 

[jj90]

I hear strippers get paid ~$500 a night. More for extras. How big are your tits?

 

[Optionswriter]

Thanks for your post. In the previous scenario, I would be comfortable with selling 6.25 puts because Im happy to buy the stock at that price in the first place ($6.25 also is a major support line for this particular stock). The stock has a strong fundamental as well, I would not be so keen to sell puts on a stock that is fundamentally unsound.

 

[daddy'sboy]

Quote from Optionswriter:

Thanks for your post. In the previous scenario, I would be comfortable with selling 6.25 puts because Im happy to buy the stock at that price in the first place ($6.25 also is a major support line for this particular stock). The stock has a strong fundamental as well, I would not be so keen to sell puts on a stock that is fundamentally unsound.

FGL. I've got an otm slightly bullish b2b calendar on.
db

 

[JournalWriter]

Quote from Optionswriter:

I was referring to in the money and at the money covered calls

I am finding it to be a good way to outperform general market when everything is flat. It definitely beats buy and hold investing.

Perhaps the return is not as high as swing trading

but I like consistent money every month

Anyone also do covered calls on regular basis? Do you think in the money covered calls is almost a sure way to make consistent money on regular basis? Please share your thoughts

I start all positions by writing naked puts and if assigned write covered calls. I like the consistency every month in a bull market, but be ware when it turns bearish. It's not as easy to write calls to even out on the way down every time so I would never say it's a sure way. If it was a lock, everyone would do it.

- The risk/return from naked puts is basically the same as covered calls without having to buy the stock first.
____________________

http://mytradersjournal.com/stock-options/

 

[Bogie]

The best way to make consistent profits in options is with credit spreads on index options out of the money.

 

[hbiawos]

"No. The best way to make consistent money in options is to buy in the money, at the money, and out of the money Puts & Calls."

That's what I do every day on momentum stocks. Most of the time I just daytrade them and was able to turn $6k into $70k in about 2 and a half months. Recently, however, I'm off my game and have had a couple of really horrible drawdown days.


If you have time, please tell me a little about your methodology.


Thanks.