Does anyone know anything about selling options
- Thread starter lasner
- Start date
Even though I agree that options are not for total newbies, I'll assume that lasner is experienced in trading and knows how to handle himself. So I say dive right in. Start small, of course, but do start.
lasner, whoever told you to avoid buying options is 100% correct. Always sell (write). With that said, I agree fully with Buy1Sell2
I'll just add a few numbers based on my personal research & experience. You'll get the best options premiums if you:
1) Sell 3-6 weeks before expiration.
2) Sell out-of-the-money, about 10%
3) Sell puts, not calls.
Example:
Wait for a stock to have a good drop. For example, RIMM just had a major fall and is trading at around 65. I would sell RIMM FEB60 puts @ 1.40.
Ok, a lot of people will probably disagree with me and say that the COVERED CALL strategy is safer. But here is why it's not. When writing covered calls, you must first purchase the underlying stock. Not only does this eat up your available cash (and/or incur margin interest), but it obligates you to hold the stock until expiration, even if it falls into the dirt. Trust me, I've been burned on this.
NAKED PUTS, on the other hand, offer you a great degree of flexibility in the even of a market crash. You can roll them out, roll them down or buy them back as you see fit, and you still retain your buying power. I don't want to get too deep into the mechanics, so I'll leave it at that for now.
But if you're totally confused by all of this, by all means stick to covered calls. It'll let you get your feet wet, and later you can explore the strategies I'm talking about.
Good luck!
lasner, whoever told you to avoid buying options is 100% correct. Always sell (write). With that said, I agree fully with Buy1Sell2
I'll just add a few numbers based on my personal research & experience. You'll get the best options premiums if you:
1) Sell 3-6 weeks before expiration.
2) Sell out-of-the-money, about 10%
3) Sell puts, not calls.
Example:
Wait for a stock to have a good drop. For example, RIMM just had a major fall and is trading at around 65. I would sell RIMM FEB60 puts @ 1.40.
Ok, a lot of people will probably disagree with me and say that the COVERED CALL strategy is safer. But here is why it's not. When writing covered calls, you must first purchase the underlying stock. Not only does this eat up your available cash (and/or incur margin interest), but it obligates you to hold the stock until expiration, even if it falls into the dirt. Trust me, I've been burned on this.
NAKED PUTS, on the other hand, offer you a great degree of flexibility in the even of a market crash. You can roll them out, roll them down or buy them back as you see fit, and you still retain your buying power. I don't want to get too deep into the mechanics, so I'll leave it at that for now.
But if you're totally confused by all of this, by all means stick to covered calls. It'll let you get your feet wet, and later you can explore the strategies I'm talking about.
Good luck!
OTM puts of stocks and indices, because of the skew, are not priced the same as OTM calls.
Unless one is a marketmaker who lives off of the spread, the buying and selling of options, regardless of strike, has ON AVERAGE the same expectancy: zero minus commissions minus vig. The long term difference between winners and losers is in being on the right side of the move of the underlying.
These are three rules that could save you some money.
1. Stay away from deep in the money options.
2. Stay away from deep out of the money options.
3. Trade slightly out of the money, at the money, or slightly in the money options.
1. Stay away from deep in the money options.
2. Stay away from deep out of the money options.
3. Trade slightly out of the money, at the money, or slightly in the money options.
This is one of the most basic concepts, but I don't think it has been explicitly stated in this thread.
Selling options = UNLIMITED downside
I was working in the NDX options pit for a while and we had a guy who sold pretty big size of the 2 delta 10 delta put spread every month for about 2 years. He seemed to be making free money until the market crashed. He disappeared and has never been back.
BTW....anyone that tries to convince you to write covered calls doesn't understand synthetic relationships. Sell a put.....it's the same thing with less commission.
Selling options = UNLIMITED downside
I was working in the NDX options pit for a while and we had a guy who sold pretty big size of the 2 delta 10 delta put spread every month for about 2 years. He seemed to be making free money until the market crashed. He disappeared and has never been back.
BTW....anyone that tries to convince you to write covered calls doesn't understand synthetic relationships. Sell a put.....it's the same thing with less commission.
You can write calls and puts, but only if part of an integrated strategy that does mainly rely in less risky approaches, otherwise it is only a matter of time before u go boom: there are so many examples of great traders that did that for a living and almost all of them have gone broke.