You are probably better off selling puts instead of calls. Calls don't yield much. Perhaps sell puts in stocks you would prefer to own more of in the event of a collapse in price.
Making 4% a year selling deep OTM covered calls?
- Thread starter Humble Investor
- Start date
I would not treat selling options as income. It’s no different than treating roulette as income even if you have positive expectancy selling options.
If OP wants to sell options because he sees edge there, he should. If he wants income he should purchase an income producing security like dividend paying stocks or reits that actually produce earnings or bonds.
If OP wants to sell options because he sees edge there, he should. If he wants income he should purchase an income producing security like dividend paying stocks or reits that actually produce earnings or bonds.
That makes zero sense. Why would you hold a long position in an asset that you believe might trade at lower valuations. How teaches the approach you are touting here? Someone's I can't help but scratch my head.
There are some reasons in this game to own a long stock position, one for instance is the delta. Also, you don't take a loss until you sell, long stock does not expire. Third, there are a plethora of ways to hedge a long stock position.
"Why would you hold a long position in an asset that you believe might trade at lower valuations."
Well, any asset MIGHT trade at lower valuations... so taking your logic to the max we would never hold any assets!
Selling puts historically has generated a higher return over time than selling calls. There are studies on this, posted by some great ETers.
Furthermore, it is not necessarily unreasonable to think "I'd like to own XYZ stock but at these levels I consider it moderately overpriced. I'll sell a put with a strike [5%] below the current stock price, and if I don't get the stock put to me I've collected the premium, if I do have the stock put to me great, I'll hold it long term because at the price put to me I consider it fairly or under valued."
So maybe selling options is a bit different than playing roulette because there is no built-in house edge?
Funny, I've actually seen selling options specifically as generating income, as compared to dividends on publicly traded stocks and REITS, where they drop the stock price by the amount of the dividend so it compared to just a return of capital, which is not the case when you sell an option.
So maybe selling options is a bit different than playing roulette because there is no built-in house edge?
Funny, I've actually seen selling options specifically as generating income, as compared to dividends on publicly traded stocks and REITS, where they drop the stock price by the amount of the dividend so it compared to just a return of capital, which is not the case when you sell an option.
The dividend discount model does not fundamentally work because the terminal value continues exist in perpetuity. So the stocks of companies that pay dividends will reflate as they earn for the next dividend.
You take a loss or gain with each and every tick your asset on the book moves. How the tax man defines gains and losses should be of secondary concern. The distinction for trading purposes between realized and unrealized loss is one of the dumbest concepts I have ever come across.
OMG, absurd. Either you hold a view an asset appreciates or a view that it depreciates. And if you believe it appreciates then be long else flat or short. If you think an asset depreciates first before it appreciates then take exposure on the short side today and flip later, or else wait and enter a long later. We can't foretell the future but we formulate views and are either long flat, or short. Being long an asset while holding the view it depreciates is an inferior move.
And there are a million things that are wrong about your comment "Selling puts historically has generated a higher return over time than selling calls". I won't get into it unless you specifically ask me for it.
And there are a million things that are wrong about your comment "Selling puts historically has generated a higher return over time than selling calls". I won't get into it unless you specifically ask me for it.
There is always a builtin house edge. It's called commission, spread, slippage. Why do you give others trading advice when you apparently have not conquered those concepts yourself?
Think of it like this: you enter a position and a millisecond later you are in negative territory if you wanted to exit it again. That is the textbook definition of an edge by the house.
Think of it like this: you enter a position and a millisecond later you are in negative territory if you wanted to exit it again. That is the textbook definition of an edge by the house.
So maybe selling options is a bit different than playing roulette because there is no built-in house edge?
Funny, I've actually seen selling options specifically as generating income, as compared to dividends on publicly traded stocks and REITS, where they drop the stock price by the amount of the dividend so it compared to just a return of capital, which is not the case when you sell an option.