Managing Funds for a Living
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In other words, keep my same strategy parameters, but add in the 2% loss savings, dividends/interest income, commission savings with my base 55%+ average annual return (with a bit of margin use), plus naked index put leverage at tops (and perhaps calls at immediate bottoms) and you still have a rather safe approach to so-called 'heady' compounded gains. PayS
Why turn away free money? No really thx guys...we may bet (er um I mean 'get') somewhere afterall!
This just in..."Volume was running lower on across the board (with today's gains)."
02:00 pm EST - OK, now go sell the NDX (1950's) or QQQ's (48's) naked calls - could be practically free money. We can monitor the market erosion and lock in hefty gains when deemed of worth.
If the market somehow bounces, it has to reach new highs for us get burnt - or it'd have to bounce rather sharply and hit our stop = 50% increase in call price.
Why turn away free money? No really thx guys...we may bet (er um I mean 'get') somewhere afterall!
This just in..."Volume was running lower on across the board (with today's gains)."
02:00 pm EST - OK, now go sell the NDX (1950's) or QQQ's (48's) naked calls - could be practically free money. We can monitor the market erosion and lock in hefty gains when deemed of worth.
If the market somehow bounces, it has to reach new highs for us get burnt - or it'd have to bounce rather sharply and hit our stop = 50% increase in call price.
the key missing from this synthetic argument is the same that is always overlooked.
Yes a $50 Stock + short $50 Call is the same as short $50 put but in most cases an investor would not do the same strike position with a naked put as he would do with a covered call. So their view of it is not clear and you get them more confused.
Most people who do short puts usually do OTM short puts at lower strikes and not ATM where many focus on CCs.
So the explanation will be better served if you move away from the pure synthetic argument and show how a short $45 put might achieve the same results more efficiently then buying the stock at $50 and selling the $50 Call. The premium on the put will be less due to OTM but you can sell more to get to same premium profit and still improve performance over ATM stock and ATM call in most cases. And the naked puts will still require less of your portfolio capital or margin to do so.
I think this is the problem when people blindly compare covered calls to naked puts as synthetic equivalents, you need to illustrate the use of, as outlined above, a short $45 put versus buying the stock at $50 and selling the $50 calls. Since you are not buying the stock, and short puts have better margins from most brokers you can sell more puts to equal the profit potential of the CC but now have $5.00 of cushion until expiration as opposed to the $2.50 cushion in the original example of the $50 Call at $2.50.
I think this makes a better argument of how short puts can be used better than CCS unless you are already using an equity filled portfolio.
So I think you will all make you point better if you point out this kind of distinction and show how you can mroe efficiently use your funds in the portfolio and make ajdustments with one position per entry versus stock + calls, then simply stating synthetics synthetics synthetics.
assuming you had the time or care to even bother
lol
good effort Cache lol...
Yes a $50 Stock + short $50 Call is the same as short $50 put but in most cases an investor would not do the same strike position with a naked put as he would do with a covered call. So their view of it is not clear and you get them more confused.
Most people who do short puts usually do OTM short puts at lower strikes and not ATM where many focus on CCs.
So the explanation will be better served if you move away from the pure synthetic argument and show how a short $45 put might achieve the same results more efficiently then buying the stock at $50 and selling the $50 Call. The premium on the put will be less due to OTM but you can sell more to get to same premium profit and still improve performance over ATM stock and ATM call in most cases. And the naked puts will still require less of your portfolio capital or margin to do so.
I think this is the problem when people blindly compare covered calls to naked puts as synthetic equivalents, you need to illustrate the use of, as outlined above, a short $45 put versus buying the stock at $50 and selling the $50 calls. Since you are not buying the stock, and short puts have better margins from most brokers you can sell more puts to equal the profit potential of the CC but now have $5.00 of cushion until expiration as opposed to the $2.50 cushion in the original example of the $50 Call at $2.50.
I think this makes a better argument of how short puts can be used better than CCS unless you are already using an equity filled portfolio.
So I think you will all make you point better if you point out this kind of distinction and show how you can mroe efficiently use your funds in the portfolio and make ajdustments with one position per entry versus stock + calls, then simply stating synthetics synthetics synthetics.
assuming you had the time or care to even bother
lolgood effort Cache lol...
Just put on one of your CC positions and then paper a short put at a strike you feel comfortable at and compare margin and profits.
The OTM put might give you more cushion but overall a CC or naked put position is truly dependent on your stock selection.
If the stock drops a bit below your strike but not a true major drop then you can take assignment and sell calls against the stock if you feel it is still a good buy at that price and do not fear further drops. Many trading firms will allow you to have your cash in t-bills or interest earning securities while selling the puts so you get some % returns on the idle cash.
Mark Wolfinger has a book where he explains about a diversified portfolio of naked puts on ETFs and discusses interesting ways to combine short puts or CCs in different positions and hwo to manage the risk. I would ook him up ("Create Your Own Hedge Fund" or something like that in the title).
The large investors I have spoken to that do naked puts or CCs also look into hedging overall market risk with index puts or diversifying sectors knwoing that a major tidal wave will sink all boats but at least you can work on hedging down markets to an extent.
CCs or naked puts are not as set and forget as most people think. TO make it work and achieve signifcant returns you really need to work on stock selection, understanding portfolio risk and even studying the net deltas of multiple short put positions and looking into how long puts on indexes might help you in unusual market drops that take down all sectors.
Anyway, just know that there is more to CCs/naked puts than meets the eye. Anything with that large notional risk takes some additional steps in risk management to protect yourself. Also you may find put spreads might be appropriate in certain situations when you want to limit your risk or exposure and be a little more aggressive and use less margin.
The OTM put might give you more cushion but overall a CC or naked put position is truly dependent on your stock selection.
If the stock drops a bit below your strike but not a true major drop then you can take assignment and sell calls against the stock if you feel it is still a good buy at that price and do not fear further drops. Many trading firms will allow you to have your cash in t-bills or interest earning securities while selling the puts so you get some % returns on the idle cash.
Mark Wolfinger has a book where he explains about a diversified portfolio of naked puts on ETFs and discusses interesting ways to combine short puts or CCs in different positions and hwo to manage the risk. I would ook him up ("Create Your Own Hedge Fund" or something like that in the title).
The large investors I have spoken to that do naked puts or CCs also look into hedging overall market risk with index puts or diversifying sectors knwoing that a major tidal wave will sink all boats but at least you can work on hedging down markets to an extent.
CCs or naked puts are not as set and forget as most people think. TO make it work and achieve signifcant returns you really need to work on stock selection, understanding portfolio risk and even studying the net deltas of multiple short put positions and looking into how long puts on indexes might help you in unusual market drops that take down all sectors.
Anyway, just know that there is more to CCs/naked puts than meets the eye. Anything with that large notional risk takes some additional steps in risk management to protect yourself. Also you may find put spreads might be appropriate in certain situations when you want to limit your risk or exposure and be a little more aggressive and use less margin.
...gotcha!
Here is a typical example. Let's say my Market Direction call is still "Green Light" (as of yesterday it was changed to "Caution"). Say the market hasn't made a lower low and declines were on lighter volume - or perhaps we are in the early phases of a bull leg like last October.
I look up my highly-rated, fully-researched list of stocks and determine AKS is a good CC buy at 34.9 x 1.3 for Jun 35 (next Friday) expiration. That's about 3.7% for a one week holding. I'm happy...I keep doing this all across my 1M account until (market-related) stops hit me, like now.
Or take the same scenario a week ago when the market was not yet suspect and say the stock moves up to 38-39 to this week with a still good market. Then say I buy the call back and sell the stock since 3/4 of my premium is captured and only half the holding period I expected has gone by. I like 6% on a CC for 1 week and I'll put the money into another 1 (Jun) or 5 (Jul) week holding - as long as it meets my high premium vs. risk desire.
You say I am going to try and sell up to 3x as many OTM puts naked at a lower strike with .2 - .4 premiums and be content I am getting interest? Industry professionals and me do not think alike. But I am trying to learn, I really am. Gilbert
Here is a typical example. Let's say my Market Direction call is still "Green Light" (as of yesterday it was changed to "Caution"). Say the market hasn't made a lower low and declines were on lighter volume - or perhaps we are in the early phases of a bull leg like last October.
I look up my highly-rated, fully-researched list of stocks and determine AKS is a good CC buy at 34.9 x 1.3 for Jun 35 (next Friday) expiration. That's about 3.7% for a one week holding. I'm happy...I keep doing this all across my 1M account until (market-related) stops hit me, like now.
Or take the same scenario a week ago when the market was not yet suspect and say the stock moves up to 38-39 to this week with a still good market. Then say I buy the call back and sell the stock since 3/4 of my premium is captured and only half the holding period I expected has gone by. I like 6% on a CC for 1 week and I'll put the money into another 1 (Jun) or 5 (Jul) week holding - as long as it meets my high premium vs. risk desire.
You say I am going to try and sell up to 3x as many OTM puts naked at a lower strike with .2 - .4 premiums and be content I am getting interest? Industry professionals and me do not think alike. But I am trying to learn, I really am. Gilbert
Ok, here is a better example - mor along the lines of what you are tryig to show.
Take IOC stock at 37.3
Jul 40 calls selling for 3.7
Jul 30 puts selling for 1.9
If I am so sure about company price and market at least 2x the 1.9 should be a no-brainer.
May not make the 3.7 + (poss) appreciation, but looking good.
I have to be careful here not to confuse this with what I know works.
PayS (this doesn't feel good, I'm taking a break and start this week's Covered Call Candidates list. C-ya)
One last thing...I have noticed that the reward from put vs call sell at shorter expiration timeframes is much lower (less worth it). For the gains I'm deriving, the shorter time-frames are a much added value. See above examples. In other words, I have a choice to sell a 10% yielding call for 5 or 6 weeks vs a 5% yield for 1-2 weeks, I'll manage with the tighter stop but higher-yielding shorter time-frame scenario. That basically elimates the short put sell advantage. I mean an OTM .3 premium at 3x ain't gonna do it for me even if less risky...and it still can go through the strike.
Take IOC stock at 37.3
Jul 40 calls selling for 3.7
Jul 30 puts selling for 1.9
If I am so sure about company price and market at least 2x the 1.9 should be a no-brainer.
May not make the 3.7 + (poss) appreciation, but looking good.
I have to be careful here not to confuse this with what I know works.
PayS (this doesn't feel good, I'm taking a break and start this week's Covered Call Candidates list. C-ya)
One last thing...I have noticed that the reward from put vs call sell at shorter expiration timeframes is much lower (less worth it). For the gains I'm deriving, the shorter time-frames are a much added value. See above examples. In other words, I have a choice to sell a 10% yielding call for 5 or 6 weeks vs a 5% yield for 1-2 weeks, I'll manage with the tighter stop but higher-yielding shorter time-frame scenario. That basically elimates the short put sell advantage. I mean an OTM .3 premium at 3x ain't gonna do it for me even if less risky...and it still can go through the strike.
I said nothing like that and I don't think you get it. Don't worry about it. Keep on doing what you are doing.
try the 35 strike for IOC instead of 30 strike and look at 20 short 35s v. 10 long CCs atm with 40 calls for july.
But I am not here to convince you to do something you dont want to. Just illustrating different and maybe more efficient ways to kill the same cat.
But I am not here to convince you to do something you dont want to. Just illustrating different and maybe more efficient ways to kill the same cat.
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