This strategy is called "picking up pennies in front of a freight train". That being said, I've done it, my own conclusion was that it was better to do it infrequently, and naked, rather then all the time because all the commissions and slippage on all the hedge options killed what little profit there was. I used to do it with Google earnings, those came out on expiration day so the IV on the far oom would still be really high. I never got burned but it made for some sweaty nights.
Genius idea selling puts on SPX??
- Thread starter iloveksy
- Start date
Doing a quick check, it will only take a $10 dollar drop in the SPX for your stop to be hit. Considering the SPX has a current ATM Ivol of roughly 12, your stop will be hit every other day! That's much different than 95% win rate! That is not accounting for vega convexity! The strategy will most likely be selling vol when things are great and buying the puts back on every down move (when they are most expensive). Losing game if you ask me.
Your selling crash protection. If a crash happens you pay out just like an insurance company would. If you try to hedge your risk or close the position out on any bad news, you will most likely be giving away all the alpha.
Your selling crash protection. If a crash happens you pay out just like an insurance company would. If you try to hedge your risk or close the position out on any bad news, you will most likely be giving away all the alpha.