Does it make more sense to sell puts instead or buy shares?

[wxytrader]

It makes more sense because you are getting a bonus of extrinsic value. If you have a profit target then you are better off selling a put at that target.

Example:

Expected MARA target price by SEP6: 16.50
buy 100 shares @ 15.00
or
sell 1 put at 16.50 @ 1.61

Scenarios:

If price drops to 14.00
Long shares pnl: -1
Short put pnl: 1.61-2.50 = -.89

If price rises to 16.00
Long shares pnl: 1
Short put pnl: 1.61-.50= 1.11

If price rises to 16.50
Long shares pnl: 1.50
Short put pnl: 1.61

If price rises to 18
Long shares pnl: 3
Short put pnl: 1.61


But does this hold true when you add in fees? Also, how does this order preview make sense?

 

[BKR88]

If you have a profit target then you are better off selling a put at that target.

Better to own shares if you have a target.
Own shares ..... price spikes to target .... profit taken.
Short put ..... price spikes to target ..... extrinsic value remains in option so only achieve full profit if held to expiration. Price could drop back down & NO profit.

Not worth selling a put vs. owning the stock with only .11 of extrinsic value.
Max loss is nearly the same and profit is not much better.
You need to hold to expiration to achieve full profit.

Max extrinsic value is selling ATM options.

EDIT:
$1.45 each to sell puts?? TDA/Schwab charges .65

 

[wxytrader]

Better to own shares if you have a target.
Own shares ..... price spikes to target .... profit taken.
Short put ..... price spikes to target ..... extrinsic value remains in option so only achieve full profit if held to expiration. Price could drop back down & NO profit.

Not worth selling a put vs. owning the stock with only .11 of extrinsic value.
Max loss is nearly the same and profit is not much better.
You need to hold to expiration to achieve full profit.

Max extrinsic value is selling ATM options.

Good points, however if price doesn't move much, then the put contract (according to my sheet) will be worth only 1.34 on SEP6...whereas the shares will have earned nothing. Price would have to drop below 14.89 @ expiry to give all the premium back.

1.61-1.34=.27 pnl

 

[BKR88]

then the put contract (according to my sheet) will be worth only 1.34 on SEP6

If you buy shares @ 15 OR sell 16.50 put @ 1.61 the put will be worth 1.50 at expiration if price is still @ 15 so only .11 profit.
1.61-1.50=.11

ITM put at expiration will always be worth strike price minus current stock price.

 

[poopy]

Dude, just stop. Every time crypto rallies you've won the Nobel. When it drops you're homeless and living in that peasant model lambo from the last century.

 

[lindq]

Good points, however if price doesn't move much, then the put contract (according to my sheet) will be worth only 1.34 on SEP6...whereas the shares will have earned nothing. Price would have to drop below 14.89 @ expiry to give all the premium back.

1.61-1.34=.27 pnl

But the markets will often not conform to your nice little sheet. And when you're short puts, you can easily give up a year's premium earnings in a day. The past 30 years have included a number of events that have wiped out funds and traders who were playing that game.

 

[wxytrader]

If you buy shares @ 15 OR sell 16.50 put @ 1.61 the put will be worth 1.50 at expiration if price is still @ 15 so only .11 profit.
1.61-1.50=.11

ITM put at expiration will always be worth strike price minus current stock price.

I must have looked at the wrong price in my sheet or my sheet is glitching...yes that makes sense because only the extrinsic value can bleed off...so the only benefit is the .11..not nothing but is it worth giving away upside potential.

 

[wxytrader]

But the markets will often not conform to your nice little sheet. And when you're short puts, you can easily give up a year's premium earnings in a day. The past 30 years have included a number of events that have wiped out funds and traders who were playing that game.

It's only a loss if you sell.

Also how would owning shares/stops protect you from a gap down pre-market?

 

[wxytrader]

Better to own shares if you have a target.
Own shares ..... price spikes to target .... profit taken.
Short put ..... price spikes to target ..... extrinsic value remains in option so only achieve full profit if held to expiration. Price could drop back down & NO profit.

Not worth selling a put vs. owning the stock with only .11 of extrinsic value.
Max loss is nearly the same and profit is not much better.
You need to hold to expiration to achieve full profit.

Max extrinsic value is selling ATM options.

EDIT:
$1.45 each to sell puts?? TDA/Schwab charges .65

1.33 *1000 = 1330 but the order has 1495

 

[lindq]

It's only a loss if you sell.

And it can often be a loss that remains a loss. When you write a put, you're making the assumption that shit isn't going to hit the fan for that particular instrument. But when it does...and it can happen for a number of reasons...you can get stuck holding a pile of crap for a long time, and trying to work yourself out of an instrument that will never recover.

I'm sharing with you from long experience. Do with it what you want.