Stagnation is only a small part of the P&L curve; all the rest of it, out to infinity, parallels a long position. For the purposes of @Overnight 's question, that was the closest equivalent.
My approach to selling puts.
- Thread starter tonyf
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Stagnation is only a small part of the P&L curve; all the rest of it, out to infinity, parallels a long position. For the purposes of @Overnight 's question, that was the closest equivalent.
it depends on the volatility skew.. if there is put skew - i.e., indexes and most large caps - then selling OTM puts will give you a long term mathematical edge because of the pricing discrepancy between the selling price and the theoretical expected value.. options are priced based on probabilities, and those probabilities tend to hold true over the long term..
if the volatility skew is neutral or to the call side, there is no mathematical advantage to selling OTM puts versus longing shares, in the long run at least.. there are individual situations which would yield one to be better versus the other, but in the long run, after 1,000 trades, the edge will depend primarily on the volatility skew..
also, counterintuitively, selling covered calls against shares if you get assigned will, in the long run, negate the mathematical edge you gave yourself by selling puts.. this is because in put skew equities, while the puts are overpriced the calls are underpriced, and the two will wash out in the end.. you'd want to sell covered calls on equities with call skew, where the calls are overpriced..
I certainly appreciate that there is nothing new in my approach. Do others do anything better besides less leverage? What can I learn from them to improve?
Leverage ratio is for me opportunity driven and not risk driven. There are less opportunities now. I approach this matter more like a hedge fund than retail (some call it balls of steel, far from that).
I do both but event driven stuff amplifies returns.
I obsess about all fillings looking for nuances. But the starting point is the balance sheet th n followed by the special situation or even drive.
That's interesting.
Can someone give tradier a hand with this one perhaps?
This post seems to have attracted a number of experienced options traders now...
next time you're looking at an index look at the prices for a call and put equal distance from the stock price.. in a perfectly efficient and neutral market, they would cost exactly the same, but you'll find the puts cost more.. in other stocks, especially HTBs and tech stocks around earnings season, you'll find call skew..
EDIT: as to the cost of hedging with SPX, i don't trade futures at all, so i wouldn't be the person to ask on that front..
I had a pretty good put-selling system using 20-day and 50-day ATRs but I have been overloaded with assignments the last month. I've got to sell puts for less juicy premiums. I now screen for stocks and ETFs with 94% DITM and sell puts at 6% ITM%.
This is where I bow out, because that chart makes no sense to me. I am just bull in China shop, so I get the fack out of here! lol!
How did your system perform in March 2020 during the Covid crisis