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I am full in cash now even in 401K
- Thread starter hajimow
- Start date
Somehwere I had read that the majority of the gains and losses occur in just a few days. That is if you miss the 10 biggest up days in a year you basically make no money and if you miss the 10 biggest down days in a year, you will outperform in spectacular fashion. Most of a rally or selloff is explained by just a few days. Constantly selling puts you are capturing the big down days (though outperforming on them) but missing on all the big up days.
Does the premium you capture compensate you for that?
Does the premium you capture compensate you for that?
You are exactly right. Hoever if you scan the mutual funds for those which had a gain of 10% over 5 years, you will not find more than a few and for 10 year it is even worse but you can find funds that had 50% gain last year. That means that they fail miserably in the other years. I believe by being not greedy and accepting small gains, I can outperform the market. I know when the market rallies 4% and I am locked to 0.3% gain, I might think the other way but I think I know what I am doing.However I am trying to improve my theory. I cannot be as active in my 401K as I am in my regular account and I am willing to listen and adjust my strategy in my 401K account.
if i were you and you wanted to do this strategy i would be doing buywriting and selling upside calls. you will be receiving less premium, but you will have a more balanced (up/down exposure) and receive some theta.
Quote from newwurldmn:
if i were you and you wanted to do this strategy i would be doing buywriting and selling upside calls. you will be receiving less premium, but you will have a more balanced (up/down exposure) and receive some theta.
Thanks for your feedback. That was one of my strategies but guess what? I cannot do it in 401K account. My 401k broker (Fidelity) does not let me do Call spread. I was on the phone with them this morning and asked them why they don't allow this strategy in 401k (cash)account ? My short call is covered by my long call so nothing should happen. You see, I have many restrictions in my 401K. That is why my performance is no way close to my regular trading account.
Quote from hajimow:
Thanks for your feedback. That was one of my strategies but guess what? I cannot do it in 401K account. My 401k broker (Fidelity) does not let me do Call spread. I was on the phone with them this morning and asked them why they don't allow this strategy in 401k (cash)account ? My short call is covered by my long call so nothing should happen. You see, I have many restrictions in my 401K. That is why my performance is no way close to my regular trading account.
At a place I used to work where they had restrictions on personal trading. Buy-writing was okay (it was considered investing), buying calls of sufficient maturity were okay; selling puts (even if covered) was considered speculative and covered callspreads were also considered speculative. Often these rules seem arbitrary.
I assume you have to be covered on your put sales. (that is you have to have enough cash to fund the purchase of spy's if you are exercised. If so, then your returns will probably be better if you sell upside cals and stay long stock. The amount you lose on the vol difference will be more than made up in the delta you capture on the upsides.
Quote from newwurldmn:
At a place I used to work where they had restrictions on personal trading. Buy-writing was okay (it was considered investing), buying calls of sufficient maturity were okay; selling puts (even if covered) was considered speculative and covered callspreads were also considered speculative. Often these rules seem arbitrary.
I assume you have to be covered on your put sales. (that is you have to have enough cash to fund the purchase of spy's if you are exercised. If so, then your returns will probably be better if you sell upside cals and stay long stock. The amount you lose on the vol difference will be more than made up in the delta you capture on the upsides.
Yes I can sell cash covered PUT but this is what I don't understand:
You say buying underlying and selling call is more profitable than selling cash covered PUT? I thought they should be the same as buying underlying plus covered call is synthetic short PUT. The disadvantage of buying the underlying and selling Call is that you pay two commisions vs selling cash covered put that you pay just one commission.
Quote from hajimow:
Yes I can sell cash covered PUT but this is what I don't understand:
You say buying underlying and selling call is more profitable than selling cash covered PUT? I thought they should be the same as buying underlying plus covered call is synthetic short PUT. The disadvantage of buying the underlying and selling Call is that you pay two commisions vs selling cash covered put that you pay just one commission.
You are right about the double commission. But it's not strickly double as every month you will not be rebuying the underlying. If you are trading the same strike it is economically the same.
But the difference is selling the upside call via the buywrite vs selling the downside put. Selling the downside put leaves you without getting any of the upside gap exposure but you keep the downside gap exposure (though with some protection). Selling the upside strike, you will take on more of the downside exposure, but will also capture some of the upside exposure and given this is your 401k (long term money), you would want to have more of the general upside trend of the markets on your side.