Naked put... eats like a mouse, sh!t like an elephant

[donnap]

Quote from Prevail:

more like inquiring as to how.

Collars can be constructed to achieve this. I suppose that you can use equivalents with a mix of interest earning positions to achieve it.

I include some as short term "investments" as opposed to trades where I take on much more risk. There's always risk/reward trade - offs. It's easy to contruct a collar that has no risk of losing nominal dollars - and that will give a decent return if the underlying performs accordingly.

Psychologically, perhaps, some may benefit from these conservative trades. But really, you nevertheless risk losing interest on the investment if you are wrong; for a greater return if you are directionally correct.

 

[Prevail]

an atm collar, which is risk free, is also profit potential free.
a collar with the strikes otm can be profitable in a directional move, but is not risk free.

I'm slow, so let me know where I'm missing it.

 

[Robert Weinstein]

Quote from Prevail:

an atm collar, which is risk free, is also profit potential free.
a collar with the strikes otm can be profitable in a directional move, but is not risk free.

I'm slow, so let me know where I'm missing it.

right, in short there is no such beast of reward OVER the rate of the highest paying FDIC bank account without adding risk. (actually sometimes maybe a little bit for short periods but those are quickly Arb'd out)

 

[donnap]

Quote from 1Reason:

right, in short there is no such beast of reward OVER the rate of the highest paying FDIC bank account without adding risk. (actually sometimes maybe a little bit for short periods but those are quickly Arb'd out)

I am not disputing this. I am attempting to illustrate a position that fits RFT's description.

Please keep in mind that there is a difference between risk free and risk free of loss. There is also a difference between theory and reality. Reality involves comms, slippage, trading experience and skill, etc.

A conversion is a risk free position - except pin risk.

Collars with offset strikes; the call having the higher strike, may be constructed to benefit from a rise in the underlying and have no risk of loss. But there's still risk - the cost of capital. These are equivalent to bull put spreads and a risk free interest earning investment (principal equal to value of the strike of the long put).

Interest rates are so low it's not easy to find a good, clear example without going out in time. Look at GOOG Jan '09 options. Selling the 480C and buying the 460P can be done for a small debit, say 2 pts at fair prices. The investment would be nearly 46K per collar for about 10 moths.

With GOOG at 457ish there's no risk of losing money and you make about 20 pts.if GOOG ends over 480. I know, big deal, but interest rates are very low. Under 460 you get nothing for your investment.

 

[turkeyneck]

I sold the 7.5 put when TMA was still trading around 12-13. I priced in a 40% margin of error and that was not enough when the fat tail hit.

 

[riskfreetrading]

Quote from turkeyneck:

I sold the 7.5 put when TMA was still trading around 12-13. I priced in a 40% margin of error and that was not enough when the fat tail hit.

I just wanted to let you know that I really sympathize with you.The market is there, and I think with prudence and perseverance, you will get many times that money. So please do not give up (Most of the successful people have lost money at one point or another).

In addition sharing your experience here will help a lot of people, and has sparked a lot of good debate. I would assign the majority of the credit of this thread to you. So you should feel good helping others. BTW, you also write great titles!

 

[riskfreetrading]

Quote from Prevail:

more like inquiring as to how.

I thought to step aside a bit, and let others contribute. I will allow donnap to take the lead in answering your question, which can be achieved in multiple ways.

 

[turkeyneck]

Quote from riskfreetrading:

I just wanted to let you know that I really sympathize with you.The market is there, and I think with prudence and perseverance, you will get many times that money. So please do not give up (Most of the successful people have lost money at one point or another).

On the brighter side, I was playing on the "house". I was up around $12k YTD. So after taking the $8k hit, I was still up for the year. That's why I'm risking a little more since I'm quite a bit ahead for the year.

 

[riskfreetrading]

Quote from donnap:

I am not disputing this. I am attempting to illustrate a position that fits RFT's description.

Please keep in mind that there is a difference between risk free and risk free of loss. There is also a difference between theory and reality. Reality involves comms, slippage, trading experience and skill, etc.

A conversion is a risk free position - except pin risk.

Collars with offset strikes; the call having the higher strike, may be constructed to benefit from a rise in the underlying and have no risk of loss. But there's still risk - the cost of capital. These are equivalent to bull put spreads and a risk free interest earning investment (principal equal to value of the strike of the long put).

Interest rates are so low it's not easy to find a good, clear example without going out in time. Look at GOOG Jan '09 options. Selling the 480C and buying the 460P can be done for a small debit, say 2 pts at fair prices. The investment would be nearly 46K per collar for about 10 moths.

With GOOG at 457ish there's no risk of losing money and you make about 20 pts.if GOOG ends over 480. I know, big deal, but interest rates are very low. Under 460 you get nothing for your investment.

Donnap: Thanks for taking the lead. Finally an expert coming with thought provoking answers! I would add that my above statement focused (in your terminology) on no capital loss, and I noticed that you noticed its accurate meaning. One can of course also forego part of the capital cost, rather than the entirety, and continue to have some reward which is what you explained earlier.

I would also add that there are other ways to do things which I am not at liberty to write about here. The most important point I want to highlight from your posts, is that one now knows that certain things can be done even if they heard and/or intuitively thought it was not doable. I bet that a large majority do not know that it could be done, and I hope they now can put their sleeves up and work/learn instead of just saying something cannot be done even when they do not have a proof to that effect.

So I want to thank you warmly Donnap, and also the other contributors who continued to ask questions even when others seem to have suggested to them to just shut out their minds. I understand when someone does not believe an opinion that has not been proved. What I do not agree with and reject are statements that suggested that what I wrote was knowingly untrue and/or just propaganda.

 

[riskfreetrading]

Quote from turkeyneck:

On the brighter side, I was playing on the "house". I was up around $12k YTD. So after taking the $8k hit, I was still up for the year. That's why I'm risking a little more since I'm quite a bit ahead for the year.

Turkey: You now made my day! But do not get that neck of yours cut again buddy!