Equity Options - This is a sellers market

[OptionsOptionsOptions]

Equity Options - This is a sellers market.

• The last couple of weeks options have been too expensive to buy.
• But selling options is no cake walk either - unless you are selling straddles.

 

[ET180]

Sold about 1% of my net liq in premium today. Mostly in naked and partially covered calls expiring this week and next week. Didn't sell a single put. Been doing this for a while. Does not completely offset my equity losses on a day like today, but it helps.

 

[Amahrix]

Sold about 1% of my net liq in premium today. Mostly in naked and partially covered calls expiring this week and next week. Didn't sell a single put. Been doing this for a while. Does not completely offset my equity losses on a day like today, but it helps.

I agree with the selling premium, but I do not agree with the naked exposure. Don’t risk ruin!

Volatility begets volatility; we know this. But don’t forget, it can be to the upside too! Vicious squeezes can happen in bear markets too.

 

[ET180]

Volatility begets volatility; we know this. But don’t forget, it can be to the upside too! Vicious squeezes can happen in bear markets too.

That's very true. I sell the options in such a way that if my strikes get hit, the rest of my portfolio must be doing quite well due to its long bias. I will also ladder my strikes both in price and time. The very high IV present today makes it possible to sell pretty far out of the money and still collect decent premium.

 

[Amahrix]

That's very true. I sell the options in such a way that if my strikes get hit, the rest of my portfolio must be doing quite well due to its long bias. I will also ladder my strikes both in price and time. The very high IV present today makes it possible to sell pretty far out of the money and still collect decent premium.

Yes, you're selling far out-of-the-money calls and are collecting decent premium.

I argue this "decent" premium you're collecting is small relative to what you're risking to collect it.

You claim you sold them in such a way that if it blows thru your strikes, the rest of your portfolio will cover the cost of the position going against you because of your long bias.

Why risk those gains in the name of collecting small premia w/ naked exposure? I feel you'll regret selling the premia if the market rallies hard (which benefits ur long bias, but now you have to pay those gains to cover a bad trade).

Also, market returns are fat-tailed.. most the gains come from infrequent, but large jumps. When these infrequent large jumps occur, such as the hypothetical one that happens to blow thru ur strike and make you pay up your gains on the long bias to cover the short call, you want to collect those gains for yourself, not pay to cover a naked short call.

What're your thoughts?

Just picking your brain and mine.

 

[ironchef]

Equity Options - This is a sellers market.

• The last couple of weeks options have been too expensive to buy.
• But selling options is no cake walk either - unless you are selling straddles.

What makes you said that?

Not expensive if the market recovers quickly.

 

[OptionsOptionsOptions]

What makes you said that?

Options have been VERY expensive the last couple of weeks. It is a sellers market at this time.

Not expensive if the market recovers quickly.

That time has not come yet.