My approach to selling puts.

LM3886 said:
By microstructure, do you mean bid-ask spread, level 2, or more?
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Execution risk on a married position/combo that is ITM (moneyness) vs. simply shorting an OTM option. Ideally you always trade the OTM when possible esp when the synthetic is one trade vs. two.
 
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Bless you Des....

destriero said:
Long SPY and short the 450C = short the 450P. The difference between a call and a put? Shares.

There isn't any difference in risk between long SPY/short 350C and the short 350P outside of microstructure. You keep contrasting an OTM CC position with an OTM short put. You're defining a risk-reversal, but I don't know why.

They are equal if the strikes are the same.
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destriero said:
Long SPY and short the 450C = short the 450P. The difference between a call and a put? Shares.

There isn't any difference in risk between long SPY/short 350C and the short 350P outside of microstructure. You keep contrasting an OTM CC position with an OTM short put. You're defining a risk-reversal, but I don't know why.

They are equal if the strikes are the same.
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i'm talking about as it relates to delta exposure.. i.e., you receive a larger credit per delta when selling the 35D put versus the 35D call, even tho your delta exposure is the same.. but also, yes, buy-writes at the same strike as a short put..

also, use IWM july 16 current contracts as an example:

if we're just talking credit-per-delta risk, the 34D put marks @ $5.18 and the 34D call marks at $3.84.. that's $0.15 per delta for the put and $0.11 per delta for the call.. obviously, short the put and long the call, yah, risk-reversal..

you said same strike will yield the same cost basis, but that's not what i'm finding right now, at least not here..

$223 strike buy-write vs a $223 short put.. IWM @ $221.40, $223 short call marks at $6.58, cost basis @ $214.82.. $223 short put marks at $8.57, cost basis on assignment @ $214.25.. the short put reduces cost basis per the amount of skew.. small difference, obviously, but it's there..

the point i'm trying to make in this thread is that shorting puts where there is put skew is going to give a cost edge over buy-writes..
 
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taowave said:
Oh boy....

Yes,Goldman/ Derman had a paper 20 plus years ago that showed selling ATM PUT,and rolling performed better on a risk adjusted basis..

That has not been the case for the last 15 years or so..Ill backtest later.

When you say "selling Puts", are you saying sell 2 Delta .50 puts, or 4 Delta .25 puts, 10 Delta .10 puts as opposed to buying 100 shares of underlying??

If so,we are back to levering up..

If you are saying shorting 1 ATM put and rolling outperforms buying the index,than you are simply wrong :)

And for what it's worth you are not correct on your buy write example vs downside put..are you telling me a short 30 Delta put has outperformed shorting the 70 Delta put ( but write)in the 15 year bull??

You are getting way too caught up in skew and not using your noodle....
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no, that's not what i'm saying.. first, to skew, i'm not saying it guides your bias.. i'm saying it gives you a metric for how to most efficiently express that bias in your trades.. i.e., which strategy provides the best risk-reward ratio in the current market conditions?

if i'm selling puts - which i'm not, if anything i'm running ratio spreads - i'm basing strike selection first off the shape of the equity's vol curve.. generally, that puts me in the 20-30D range.. it also helps that the vol drops off after the 1SD mark, so any decent upmove on a 20-30D short put and your vol is going to be collapsing rather quickly..

also, i didn't say anything whatsoever about rolling puts.. i'm not a fan of rolling, you're just kicking the can down the road as far as i'm concerned, and while money can be returned, time can't...

also, i didn't say anything about 30D vs 70D puts... i said short puts vs buy-writes.. check my response to destriero if you want two real-world, current examples of exactly what i'm talking about..
 
destriero said:
No, the difference is the fwd to July. IWM traded higher AH in line with NQ and spooz.
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i'm going off the close price, not the AH price.. options prices don't move AH, so the prices should be the same as they were at close, no? also, had to edit my reply cuz i misworded a couple things
 
daytonabeach83 said:
i'm going off the close price, not the AH price.. options prices don't move AH, so the prices should be the same as they were at close, no? also, had to edit my reply cuz i misworded a couple things
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Calc the forward (IWM D1 synthetic). You don't use the shares.
 
daytonabeach83 said:
...in equities with put skew, you receive MORE credit for selling the put than the equivalent covered call, BECAUSE OF THE SKEW LOL.. that's literally exactly what the skew is telling you.
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This statement is completely wrong. A covered call is equivalent to selling the same-strike put. Barring liquidity or early-exercise (upcoming dividend) issues, the same-strike put and call will trade at the same vol -- they'll express the exact same skew.

Your posts so far are mostly gibberish.

Post less, read more. @newwurldmn is one of the handful of guys here who know what they are talking about, stop arguing with him and start listening to what he tells you.

Edit: I see @destriero already posted on the same-strike call/put issue. Missed that, probably because I took too long to write the post, pausing for coffee half way through.
 
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