how come you would write a put rather than buy a call?
- Thread starter IronFist
- Start date
Apparently because buying options is just a stupid idea, and you will lose tons of money. But your risk is limited.
But selling options is unlimited risk with unlimited reward. Unless you hedge. But NEVER EVER just buy a call, because you will never ever make money.
Right options guys?!?!
Apparently the only way to make money with options is to use sophisticated strangles, straddles, flies and condors. Put spreads, debit spreads, and every greek letter in the alphabet. It's fascinating stuff!
To take delivery on shares. Two methods; write one near month put, buy one long dated put. Take delivery on short put, use long put as hedge, or sell far out put atm, buy 2 lower down. Take delivery on atm. Obviously, there are more steps.
It's possible to make more money selling a put than buying a call. Even if the underlying makes a big move to the upside. Both can be used as forms of leverage.
Selling a naked put is technically not an unlimited risk/unlimited reward.
The most you can lose is the strike price, if the stock were to go to zero. The most you can make is the premium you collected when you sold the put.
Most brokers allow you to sell naked puts as long as you have sufficient cash available to take an exercise. If I sell a 40 put, the most I can possibly lose is $4,000.00.
BMK
The three Ds
Direction (up or down)
Duration (how long)
Destination (how high or low)
In your case a call. so you picked the direction up but for you to get the other two correct up and in how long and how far is difficult that even if you do rarely you make big money
Where as selling a put you only have to be right on one of them, direction, time is on your side, no rush, you can exit any time even if options has not expired but stock simply moved up,
and you can also be wrong on the destination, where stock drops assuming not much and can still make money (margin of safety) remember its safety versus leverage, so lots less stars to line up than buying a call. Also selling a put depending how much money is in the account is NOT necessarily leverage it can be simply wanting to get in, where as buying a call even if you have all the money in the account its built in leverage because now your racing against time, were assuming otm call
the people I've seen make money on calls are ones that are constantly buying them, and they try their best in timing it but most importantly they stick to that strategy, 8 out of 10 times they are WRONG and they are OKAY with it because the two times it pays off it covers all of it
for me that's too much psychological pressure and stress on those two trades to work, its like you have a soccer team and your expecting two players to do all the scoring.
Direction (up or down)
Duration (how long)
Destination (how high or low)
In your case a call. so you picked the direction up but for you to get the other two correct up and in how long and how far is difficult that even if you do rarely you make big money
Where as selling a put you only have to be right on one of them, direction, time is on your side, no rush, you can exit any time even if options has not expired but stock simply moved up,
and you can also be wrong on the destination, where stock drops assuming not much and can still make money (margin of safety) remember its safety versus leverage, so lots less stars to line up than buying a call. Also selling a put depending how much money is in the account is NOT necessarily leverage it can be simply wanting to get in, where as buying a call even if you have all the money in the account its built in leverage because now your racing against time, were assuming otm call
the people I've seen make money on calls are ones that are constantly buying them, and they try their best in timing it but most importantly they stick to that strategy, 8 out of 10 times they are WRONG and they are OKAY with it because the two times it pays off it covers all of it
for me that's too much psychological pressure and stress on those two trades to work, its like you have a soccer team and your expecting two players to do all the scoring.
because selling OTM options puts the odds of success in your favor due to IV almost always being higher than HV...delta essentially gives you the % chance the option will expire ITM so pick a contract with a >.30 delta and dated at the point of highest theta acceleration and you have a formula for more victories than losses...
HOWEVER...IMO...
Naked options is THE definition of picking up pennies in front of steam rollers. You collect your baby premium from the OTM option and they expire worthless the majority of the time...but that one time the underlying gaps overnight against you and your SL gets triggered at open...you give back most/all/more of the profits you have collected gradually from contracts expiring worthless. I think it is essential to have a really strong handle on shorting options and strategies to limit risk beyond setting a SL...like spreads, delta hedge etc...There are some big brain dudes on here that can go into detail on these various methods but i am not qualified.
HOWEVER...IMO...
Naked options is THE definition of picking up pennies in front of steam rollers. You collect your baby premium from the OTM option and they expire worthless the majority of the time...but that one time the underlying gaps overnight against you and your SL gets triggered at open...you give back most/all/more of the profits you have collected gradually from contracts expiring worthless. I think it is essential to have a really strong handle on shorting options and strategies to limit risk beyond setting a SL...like spreads, delta hedge etc...There are some big brain dudes on here that can go into detail on these various methods but i am not qualified.
You forgot the made up letters vanna and charm (second derivatives)...crazy option peeps.