My approach to selling puts.

[taowave]

In what world?????

IBKR's Risk Navigator with what-if testing does a similar job. I run it once a week.

IBKR's Risk Navigator with what-if testing does a similar job. I run it once a week.

 

[tonyf]

In what world?????

In the world of anyone not wanting to disclose their positions to a third party vendor.
Again, no need to be on the offensive. No one is insulting you.

 

[taowave]

"Disclosing"or not has nothing to do with confusing a simple what if risk scenario tool with a portfolio/option backtester that "could" help you immensely...

From everything you have disclosed,your excess return was leverage.I wouldn't worry about running Sims and the developer reverse engineering your strategy.

You can thank me after heeding my advice and raising your first billion..

 

[daytonabeach83]

I don’t look at it this way. What often happens is that market has a sharp sell off and your put strike doesn’t seem so appealing any longer. You can buy the stock at much better price and benefit from move higher. So selling puts has opportunity costs, as it should since you are simply selling tail risk(no edge). That is where rolling may come to the rescue. If you can roll, preferably for credit, you have flexibility to “change your mind” by either lowering strike or extending time or both. You don’t have same flexibility with being long even if you waited for a pull back. I am not saying that rolling is a panacea, but that it’s a very valuable option to have, imho.

i see what you're saying, but what i'm getting at is that if you wanted to buy 100 shares of SPY today, then you're going to be better off selling the put than buying the stock.. if you're monday morning quarterbacking, then sure, you could say "well, i would've been better off waiting"... but in terms of "I'm going to purchase these shares today," you're always going to get the shares cheaper selling a put vs buying them outright...and if you just bought the 100 shares, and the market has that sell-off, you're going to be losing less money with the short put than with the long shares

 

[taowave]

What you are saying is only true in a flat to down market...

Run a backtest over the last 15 years and you will see that buying the underlying outperforms selling the put.

Great stock traders do not sell puts in lieu of buying stock..Value guys do..Totally different game..

i see what you're saying, but what i'm getting at is that if you wanted to buy 100 shares of SPY today, then you're going to be better off selling the put than buying the stock.. if you're monday morning quarterbacking, then sure, you could say "well, i would've been better off waiting"... but in terms of "I'm going to purchase these shares today," you're always going to get the shares cheaper selling a put vs buying them outright...and if you just bought the 100 shares, and the market has that sell-off, you're going to be losing less money with the short put than with the long shares

 

[newwurldmn]

i see what you're saying, but what i'm getting at is that if you wanted to buy 100 shares of SPY today, then you're going to be better off selling the put than buying the stock.. if you're monday morning quarterbacking, then sure, you could say "well, i would've been better off waiting"... but in terms of "I'm going to purchase these shares today," you're always going to get the shares cheaper selling a put vs buying them outright...and if you just bought the 100 shares, and the market has that sell-off, you're going to be losing less money with the short put than with the long shares

what happens if the stock rallies a lot after you sell the put? Who spends time researching a stock then bets it is going to rally by setting a trade that has limited upside to that view.

there is a reason all those smart long short guys like bill ackman and chase Coleman buy the equities instead of selling puts.

If a stock is down 20percent who gives a shit if you outperformed buy and hold by 19percent by selling a put. However if you spent weeks studying a stock and it rallies 20percent and you only make 1percent on your short put.... that might be the second greatest sin in portfolio management.

 

[taowave]

Great post......

When my sales guys brought in the likes of Tudor and Cohen,not once did they ever ask for a product/structure that capped their upside..

Assymetrical payout or go home

what happens if the stock rallies a lot after you sell the put? Who spends time researching a stock then bets it is going to rally by setting a trade that has limited upside to that view.

there is a reason all those smart long short guys like bill ackman and chase Coleman buy the equities instead of selling puts.

If a stock is down 20percent who gives a shit if you outperformed buy and hold by 19percent by selling a put. However if you spent weeks studying a stock and it rallies 20percent and you only make 1percent on your short put.... that might be the second greatest sin in portfolio management.

what happens if the stock rallies a lot after you sell the put? Who spends time researching a stock then bets it is going to rally by setting a trade that has limited upside to that view.

there is a reason all those smart long short guys like bill ackman and chase Coleman buy the equities instead of selling puts.

If a stock is down 20percent who gives a shit if you outperformed buy and hold by 19percent by selling a put. However if you spent weeks studying a stock and it rallies 20percent and you only make 1percent on your short put.... that might be the second greatest sin in portfolio management.

 

[LM3886]

you're always going to get the shares cheaper selling a put vs buying them outright...and if you just bought the 100 shares

Consider two scenarios:
1) Short 1x put that expires on day X. If assigned, do nothing. Otherwise buy 100 shares on expiration.
2) Buy 100 shares on day X.

They should have the same expectancy unless the put is not fairly priced. So, in the long run, there is really no edge to acquire the shares through a short put than to acquire them directly on the put expiration date.

 

[tonyf]

what happens if the stock rallies a lot after you sell the put? Who spends time researching a stock then bets it is going to rally by setting a trade that has limited upside to that view.

there is a reason all those smart long short guys like bill ackman and chase Coleman buy the equities instead of selling puts.

If a stock is down 20percent who gives a shit if you outperformed buy and hold by 19percent by selling a put. However if you spent weeks studying a stock and it rallies 20percent and you only make 1percent on your short put.... that might be the second greatest sin in portfolio management.

That's correct which is why I qualified selling puts earlier as a bet on stagnation.
You would do that if expected returns from option yield exceed projected growth of the underlying in your view and at time of entry.
Downside risk has to be managed in the same way in either case, regardless of gearing factor.

Again, I see no chance in replicating those returns any time soon. I will be very happy with a third of that performance over the next 12 month. The dislocation, coupled with Covid uncertainty and retail capital flow is probably a one off event.

The other nice thing with options is that it forces you to monetise on a monthly basis, rebalance and compound (or not). A set exit. That suits my personality as a fixed income guy. Many equity guys are never sure when to exit, regardless of how well their entry was.

Now the beta question is whether to bet on a long market from here or a stagnating market....you know where I stand.

I did post here to learn from others (and not preach) on the other hand. As you know, I am not a vol trader and have no interest in learning that business and wonder what (besides risk and leverage) can inspire a better approach to options value investing (not trading). There is very little info on that particular segment out there. Most options guys are speculators or arbitrageurs.

 

[traider]

That's correct which is why I qualified selling puts earlier as a bet on stagnation.
You would do that if expected returns from option yield exceed projected growth of the underlying in your view and at time of entry.
Downside risk has to be managed in the same way in either case, regardless of gearing factor.

Again, I see no chance in replicating those returns any time soon. I will be very happy with a third of that performance over the next 12 month. The dislocation, coupled with Covid uncertainty and retail capital flow is probably a one off event.

The other nice thing with options is that it forces you to monetise on a monthly basis, rebalance and compound (or not). A set exit. That suits my personality as a fixed income guy. Many equity guys are never sure when to exit, regardless of how well their entry was.

Now the beta question is whether to bet on a long market from here or a stagnating market....you know where I stand.

I did post here to learn from others (and not preach) on the other hand. As you know, I am not a vol trader and have no interest in learning that business and wonder what (besides risk and leverage) can inspire a better approach to options value investing (not trading). There is very little info on that particular segment out there. Most options guys are speculators or arbitrageurs.

I think it's useful to learn some of the basics of options. You don't really have to derive Black Scholes from scratch but having a good grasp of the fundamentals really help a lot in structuring good trades. I learnt the hard way by reading stuff like Hull etc so I can't recommend a good course but maybe someone else can.