But is put selling ALWAYS too risk in your opinion? I remember a study done of option selling, long term, short term, calls, puts, and the one that did better than all the rest over time was selling puts. That would (to me) indicate that many people think like you and won't sell puts, meaning those that will can get the fatter premiums and better long-term return. Thanks Scat.
Is the answer right now to be.... selling puts???
- Thread starter SoyUnGanador
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But is put selling ALWAYS too risk in your opinion? I remember a study done of option selling, long term, short term, calls, puts, and the one that did better than all the rest over time was selling puts. That would (to me) indicate that many people think like you and won't sell puts, meaning those that will can get the fatter premiums and better long-term return. Thanks Scat.
Wait a second. I already missed the boat? Isn't that butt backwards? If I had sold the puts 6 or 9 months ago I would have been bleeding like a Dahmer victim. Are you confusing puts with calls? It seems to me by NOT selling puts now I am potentially missing the boat... its not often that the Naz is down over 30% from its high...
Traders sell puts in a rising market, expecting they won't go ITM... and they usually don't so the seller gets to keep the premium. Some lever up on the exposure by buying LOTS of puts.. and they usually get away with it in a rising market. So naturally your study would show a significant success rate. However when the puts go ITM, the seller may come under heavy pressure. There are famous historical examples of big-name guys going bust because of this... Victor Niederhoffer ring a bell? He's done so at least twice.
The only safe ways to sell puts is (1) to make your play small-ish compared to your capital... but who wants to do that?... or (2) hold cash in reserve to satisfy your contract should the issue go south.... called "cash backed puts". You'd have to commit the notional value of your puts to cash with your best reward being capturing the premium. Also, who wants to do that? And of course there are spread plays but those are low-reward potential plays too.
Bottom Line... selling naked options is a high risk endeavor. You can get in trouble selling too many calls also much like selling too many puts.
Ditto. But in a bear market a much tougher call. Like in the above example, "sold puts for 68, bought back at 250". That's the kind of thing you leave yourself open to.
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Put premiums are fat right now because of perceived risk... figures to mean you're more likely to get trapped than when the market is bullish.
You ever hear the expression "picking up nickels in front of a steamroller"? For years everything is wonderful and then just one time you trip and fall.
I don't know where you are reading that the long term return of put selling beats all other option strategies, but I don't believe that to be true. Why would all of us be spending decades here refining spread management techniques and waiting for that next nugget of wisdom that's going to make us a tad better when we could have been just selling puts all along?
You should do it. And I (seriously) hope you become wealthy doing so. Please keep us posted on how it goes. ATM puts on ES expiring tomorrow are going for $53 right now.
