Idea: use ShortSelling only

Q

Quanto

When ShortSelling options (like in CoveredCall or CashSecuredPut) one can additionally buy a protective Put to turn the whole into a spread-like construct ("Z" or vertical mirror img of it), or even turn it into a "V"-like construct by using LongPut.Qty > ShortOption.Qty.
The problem with this is that the protection via LongPut costs much.
Can one not achieve a similar protection by ShortSelling some additional strikes, instead of the LongPut?... :)

Update:
My simulator shows me some interesting constructs! Seems to be possible!... :)
More later...
 
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Quanto said:
When ShortSelling options (like in CoveredCall or CashSecuredPut) one can additionally buy a protective Put to turn the whole into a spread-like construct ("Z" or vertical mirror img of it), or even turn it into a "V"-like construct by using LongPut.Qty > ShortOption.Qty.
The problem with this is that the protection via LongPut costs much.
Can one not achieve a similar protection by ShortSelling some additional strikes, instead of the LongPut?... :)

Update:
My simulator shows me some interesting constructs! Seems to be possible!... :)
More later...
More...

A protective put is a terrible hedge. I saw an article that tested stops versus puts versus futures to hedge a stock position and futures performed best...stops are garbage and puts not much better... especially in a covered call or cs short put position I don't think they even work because they cut into the premium which is your natural hedge. I would ignore the long put and just get assigned at any price...or as you mentioned sell another put even farther ITM and if it gets hit then more cheap stocks for you :)

I would probably only do this with index ETFs.
 
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wxytrader said:
A protective put is a terrible hedge. I saw an article that tested stops versus puts versus futures to hedge a stock position and futures performed best...stops are garbage and puts not much better... especially in a covered call or cs short put position I don't think they even work because they cut into the premium which is your natural hedge. I would ignore the long put and just get assigned at any price...or as you mentioned sell another put even farther ITM and if it gets hit then more cheap stocks for you :)

I would probably only do this with index ETFs.
More...
A protective Put works well, but is expensive. It's about capping losses.
Comparing protective put with stops is like comparing apples with oranges. :)
B/c protective put does not close the trade but continues it, unlike the stop.
You need to study the PnL chart.

Yes, protective put eats up from the premium of the short (the "income"), and I try to prevent this by finding a better solution...
 
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Quanto said:
A protective Put works well, but is expensive. It's about capping losses.
Comparing protective put with stops is like comparing apples with oranges. :)
B/c protective put does not close the trade but continues it, unlike the stop.
You need to study the PnL chart.

Yes, protective put eats up from the premium of the short (the "income"), and I try to prevent this by finding a better solution...
More...

lol the study was comparing getting stopped out constantly, versus rolling puts/holding leaps or using futures. :)

Puts do not work well because you can lose the entire premium you paid which is probably worse than any (unrealized) losses you would have suffered on the stock. Instead of buying a long put I would rather sell a call. It is much better to hedge via another stock that acts inverse to the long or futures.

What you call capping losses I call missing out on getting more shares cheaper and compounding future profits.

Shares+cheaper shares+cheaper shares+rally=2008 Lambo
 
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wxytrader said:
lol the study was comparing getting stopped out constantly, versus rolling puts/holding leaps or using futures. :)

Puts do not work well because you can lose the entire premium you paid which is probably worse than any (unrealized) losses you would have suffered on the stock. Instead of buying a long put I would rather sell a call. It is much better to hedge via another stock that acts inverse to the long or futures.

What you call capping losses I call missing out on getting more shares cheaper and compounding future profits.

Shares+cheaper shares+cheaper shares+rally=2008 Lambo
More...
LongPut as an additional leg to CC changes the PnL chart, ie. behaves differently than you describe.
Anyway, it's futile to continue discussing about LongPut since the topic of this discussion is to get rid of it.
 
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