How Profitable Is Writing Options

[Pekelo]

To answer the OP's vague question (he forgot to clarify if it is covered or naked options):

If you pick a big cap, slow moving but good dividend paying stock, assuming a flat year, you can make 15%+ annually. (4-5% dividend, 0.8-1% monthly premiums) Even in a down year the CCs protect you from too big of a loss.

With naked options, the sky is the limit, but so is your possible loss. Check out Marsman's posts... He was killing it until he got blown away...

 

[Pekelo]

Should I manage a CC different than a naked when the trade goes against me?

What I am doing with CC is, if it is just a little loss, I roll to a higher strike price. If it is a sudden jump I just let the stock to be called away, then next month I write cash secured puts. I am not writing naked calls, but if it was a gradual increase in the stock price, I would have a hard limit where I would just call it a loss...

You see the difference is, if the stock keeps going up, and I am out of the stock, I still make money with the cash secured puts. If you keep rolling the naked calls, you might end up with a giant loss.

 

[ironchef]

To answer the OP's vague question (he forgot to clarify if it is covered or naked options):

Started out covered but I got greedy and....

Really appreciate you taking the time to answer. Very helpful to me.

Thanks.

 

[ironchef]

Pekelo,

CC and if called, sell cash secured puts. I have not tried that myself, mostly I just bought the underlying back and started the CC cycle again. The net result was I wasn't able to beat holding the underlying.

Were you able to beat holding the underlying with this strategy over some long periods?

Regards,

 

[Pekelo]

Were you able to beat holding the underlying with this strategy over some long periods?

Yeah. In the last 7 months although the stock has been going down I am beating the buy and hold by 8% on at stock, thanks to the CCs and dividends.

If you want we can chat privately about my strategy or how to find similar stocks. Basically look for established, big cap companies with low beta and preferably sideways or upwardish movement, and the monthly premium should be at least 1%. The annual dividend more than 4%...

Then depending on the recent movement of the stock, you start out with CC or CSPs. If the stock has been going down, I would sell the puts first.

 

[Trading Education Buyer]

Yeah. In the last 7 months although the stock has been going down I am beating the buy and hold by 8% on at stock, thanks to the CCs and dividends.

If you want we can chat privately about my strategy or how to find similar stocks. Basically look for established, big cap companies with low beta and preferably sideways or upwardish movement, and the monthly premium should be at least 1%. The annual dividend more than 4%...

Then depending on the recent movement of the stock, you start out with CC or CSPs. If the stock has been going down, I would sell the puts first.

You still hide your annual total returns .It is not going lose your edge.You sound like a real trader , from your posts , amongst so many fake pretenders.

 

[DTB2]

Yeah. In the last 7 months although the stock has been going down I am beating the buy and hold by 8% on at stock, thanks to the CCs and dividends.

If you want we can chat privately about my strategy or how to find similar stocks. Basically look for established, big cap companies with low beta and preferably sideways or upwardish movement, and the monthly premium should be at least 1%. The annual dividend more than 4%...

Then depending on the recent movement of the stock, you start out with CC or CSPs. If the stock has been going down, I would sell the puts first.

How far out in time are you selling? Or is it based on averaging the 1% per month, i.e. 2 months out for 2% premium?

 

[algofy]

Unless you have a huge institutional sized bankroll you will likely get wiped out in a major risk event selling premium. End of story.

 

[ironchef]

Yeah. In the last 7 months although the stock has been going down I am beating the buy and hold by 8% on at stock, thanks to the CCs and dividends.

If you want we can chat privately about my strategy or how to find similar stocks. Basically look for established, big cap companies with low beta and preferably sideways or upwardish movement, and the monthly premium should be at least 1%. The annual dividend more than 4%...

Then depending on the recent movement of the stock, you start out with CC or CSPs. If the stock has been going down, I would sell the puts first.

Thank you. Let me run some backtest and simulation from the parameters you outlined to understand the concept. I should not be asking you to spend time explaining unless I invest my own time into understanding it.

Regards,

 

[ironchef]

Unless you have a huge institutional sized bankroll you will likely get wiped out in a major risk event selling premium. End of story.

I just don't think you will get wiped out if you sell CC or CSP as proved out by the CBOE indies of PUT and BXM. On the other hand, investing in the two indices does not seem to offer the outsize rewards for us options traders. I am going through the trouble trading really is in hope of much better outcome than slightly better or slightly lower risk than buy and hold the equities.

If your statement referred to shorting naked calls and puts, then yes they are very high risk and low reward plays, especially going DOTM.