My approach to selling puts.

[tonyf]

Im a big fan of your ability to analyze a balnce sheet and come up with some fair value/margin of safety...

Its the leverage of up 7x with no position sizing/risk management to put up 100 percent that is a big red flag...

Im not being argumentitive,but you havent answered how your stocks performed,with the risk/reward metrics to compare to your short vol portfolio.

If they underperformed the S&P or some correlated benchmark, then what exactly is your edge?? Leverage??? Thats most likely where your sweet return is coming from

There may be a far better (risk adjusted) way to capitalise on your fundamental analysis....

Of course there are better ways, but this one suits my style and personality. I opened my post by saying that. To me this is more important than optimisation.

Now please don't confuse with charlatans here selling courses, methods, raising funds, YouTube channels or advertising brokerage services. I have nothing to sell whatsoever and never will. I equally don't owe you any answers (surprise surprise). I believe I have shared enough now so please lower your guns...

 

[destriero]

I haven't read the thread--tonyf reminds me of the guys at Quad. I talked to them briefly due to their access to secondaries and IPOs but decided to stay on my own at the time. A good % of the guys there were 100% positioned in short puts on deep micro-analysis (mostly banks). I personally couldn't do it, but c'est la vie.

 

[taowave]

100 percent positioned is no big deal,it's the 3x to 7x leverage in highly illiquid names that typically does not end well...

I haven't read the thread--tonyf reminds me of the guys at Quad. I talked to them briefly due to their access to secondaries and IPOs but decided to stay on my own at the time. A good % of the guys there were 100% positioned in short puts on deep micro-analysis (mostly banks). I personally couldn't do it, but c'est la vie.

 

[destriero]

100 percent positioned is no big deal,it's the 3x to 7x leverage in highly illiquid names that typically does not end well...

I am not referring to cash secured--I'm talking no other position (than short puts). Not referring to leverage, but yeah, a 20% move would result in a debit if it were a dot shot. I don't believe that a deep understanding of the company is sustainable when shorting puts with leverage. IOW, it's simply not enough.

 

[qlai]

I am not sure this is correct. If I want to go long, I buy the underlying. Selling puts is a bet on stagnation in my view (neither long nor short).

Related to the above. Why don’t you roll to avoid assignment? In my mind, the only reason to sell puts instead of longing the underlying is the ability to roll.
Also, I don’t understand the point of using illiquid options instead of using indices. When economy turns, it doesn’t matter how good the balance sheet is, the stock will get hurt. Neither will go to zero. It sounds to a layman like me that playing in that space is more risk than justified by reward, but also less scalable.

 

[tonyf]

Related to the above. Why don’t you roll to avoid assignment? In my mind, the only reason to sell puts instead of longing the underlying is the ability to roll.
Also, I don’t understand the point of using illiquid options instead of using indices. When economy turns, it doesn’t matter how good the balance sheet is, the stock will get hurt. Neither will go to zero. It sounds to a layman like me that playing in that space is more risk than justified by reward, but also less scalable.

How does rolling works with illiquid options with wide bid-ask?

Scaling (like leverage) is a prooblem and an opportunity. It keeps deep pockets who can hire people like me away.

 

[tonyf]

I am not referring to cash secured--I'm talking no other position (than short puts). Not referring to leverage, but yeah, a 20% move would result in a debit if it were a dot shot. I don't believe that a deep understanding of the company is sustainable when shorting puts with leverage. IOW, it's simply not enough.

I am concerned by the speed of the drop. A 20% move in a week will hurt me. If the drop takes a month, I can manage it. Low vix in the high teens equally hurts me. Closer to 30 suits me better.

 

[tonyf]

I haven't read the thread--tonyf reminds me of the guys at Quad. I talked to them briefly due to their access to secondaries and IPOs but decided to stay on my own at the time. A good % of the guys there were 100% positioned in short puts on deep micro-analysis (mostly banks). I personally couldn't do it, but c'est la vie.

Not sure what Quad is ? A prop shop?

Have you heard of people there running long-short books with puts instead of equity?

Regional deposit-taking banks are definitely interesting.

 

[qlai]

How does rolling works with illiquid options with wide bid-ask?

Well that is part of my point. You can’t get easily filled opening or closing. I think you lose the main benefit of selling puts vs. buying shares, imho.

 

[daytonabeach83]

Related to the above. Why don’t you roll to avoid assignment? In my mind, the only reason to sell puts instead of longing the underlying is the ability to roll.
Also, I don’t understand the point of using illiquid options instead of using indices. When economy turns, it doesn’t matter how good the balance sheet is, the stock will get hurt. Neither will go to zero. It sounds to a layman like me that playing in that space is more risk than justified by reward, but also less scalable.

you don't see an advantage in entering a stock at a lower price? sure, if you get assigned, you're paying more than you would if you bought the shares at that moment... but buying them when you did, when you sold the put, you'd have been paying a higher price than you are now...