Yes I was referring to selling prem on dotm. I have no idea what your first paragraph means.
How Profitable Is Writing Options
- Thread starter ironchef
- Start date
CC=covered calls, CSP=cash secured puts. PUT is the CBOE index on selling SPX cash secured puts, BXM is CBOE index on selling covered calls on SPX.Yes I was referring to selling prem on dotm. I have no idea what your first paragraph means.
Hello Everyone,
Long time lurker first time poster.
Good thread and good info.
I have been selling naked weekly spy calls for the last year, with the exception brexit week I have kept all the premiums.
Long run not a good strategy because I only sell when market goes down, when it is flat it never pays me to sell.
I have been pondering two strategies how pekelo has suggested,
1. Sell CCs and then sell Cash Secured Puts if called.
2. Sell Cash Secured Puts and then write calls if assigned.
Long time lurker first time poster.
Good thread and good info.
I have been selling naked weekly spy calls for the last year, with the exception brexit week I have kept all the premiums.
Long run not a good strategy because I only sell when market goes down, when it is flat it never pays me to sell.
I have been pondering two strategies how pekelo has suggested,
1. Sell CCs and then sell Cash Secured Puts if called.
2. Sell Cash Secured Puts and then write calls if assigned.
I have been doing this for 7 months now and it has been beating the buy and hold by 8% or so.(Well, when the stock is not moving up.)
But, it is not good for just any stock. Yo-yoing stocks would screw with this strategy big time, also fast moves are not wanted. So if you try this, choose a slow moving stable stock with a good dividend if possible. Also, when a rally is coming (if you can help with the timing), you don't want to own the calls, that just limits your profits...
About your index call selling, check out Sweet Bobby's thread on the Karen strategy. The main idea there is to increase the selling in the direction of the move, because IV goes up and the move is most likely not going to last. So when it rallies, sell the calls, when it drops, sell the puts...
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I have been working on three scenarios: A sinusoidal stock price movement, an up trend and a down trend. Of the three, selling calls will always be better than buy and hold in a down trend. For up trend, it depends on strike prices whether selling call/put can beat buy and hold.The interesting case is a sin stock movement. In this case buy and hold has zero return and any premium collected through CC and CSP will certainly beat zero? So the case I really have to work hard is if the stock is trending up?
Regards,
??? I thought you will then keep collecting and never be called?
Not necessarily. It depends on the speed of fluctuation. If it is mild, so you have time to collect the premium or adjust the position, then you are golden. But if it yo-yos too fast, you can end up buying the stock too high with the CSP and being called away way with the CC too low in the next month. Then when it rallys back you miss out on the profits.
The difference between the buy and hold and the strategy won't be huge over the year, but an automatic outperformance of the B and H is not guaranteed.
You could back test this with TSLA between February 1st and now. The stock prices are the same, but there were huge rallies and sell offs in between.
I think it really depends on your definition of 'profitable'. I write WAY out of the money credit spreads on the SPX and make 1.5 - 2.5% per week. I call that profitable and my risk is mitigated when volatility is down. When it's up, being way OTM increases premium a little (maybe 3-4%) but risk isn't horribly affected. Good luck on your trades.
Problem with CC strategy is, over time, your winners get called and you keep your losers. I find this strategy effective only when:
1. You want to keep the underlying share for the long haul and don't mind a downward trend.
2. You are writing the call ITM and expect to keep the underlying for a short period (1-4 weeks).
Other than these two paths, I don't see a good CC strategy.
JMO.
Good Luck on your trades.
1. You want to keep the underlying share for the long haul and don't mind a downward trend.
2. You are writing the call ITM and expect to keep the underlying for a short period (1-4 weeks).
Other than these two paths, I don't see a good CC strategy.
JMO.
Good Luck on your trades.
What happened on Nov 7?
O wait... just one of the most significant moments of 2016...
Don't just write options based on IV>HV. Think about market sentiment and what's on schedule. BREXIT, US elections... not really moments to sell naked options.
On market efficiency..., there are people stating selling is always better than buying.... maybe so in the long run, but how big are you trading? When you're leveraged up the hill, you're just a sitting duck. Eventually you will get hit.
Like @Pekelo mentioned, the Marsman dude got f^$@ed royally because he used max leverage selling OTM, which eventually turned sour.... not that we didn't warn him.