Naked Puts on margin

Z

Zinot

Hi everyone

I am inversting since 2015 and had (like hopefully most of you) a nice 2020 with a simple value approach to some bluechips which dipped. I started using covered calls on my investments back in 2018 and it worked more or less ok (difficult with this never ending rally! :-).

I then started to sell 1-2 cash secured puts per month with the cash not invested (my cash ratio is always around 20% für "special situations".

Due to very low initial margin requeirements and the current market environment I started thinking about writing naked puts on margin on bluechips in Europe and the US. - I THINK that the marked will have a 10-20% correction soon but still want to profit from the put writing in the meantime.

I would try to roll all ITM puts if possible for a credit if necessary for long timeframes if sh... hits the fan.

No to me real question based on the following numbers:
Investments in bluechips: 75k
Cash: 15k
Lombard: 50k

You can read everywhere in the internaet that the used margin should NEVER exceed 50% max! My broker askes for an initial margin of around 10-13%.

So if I write 1 put with a strike of 100$ it would use up around 1000-1300$ of margin.

Which of the above mentioned numbers is now need to be looked at for the 50% to result!?!?

Cash?
Cash+Lombard?
Cash+liquidation value of investments?
all together?

I know that your anser is "it depends on my risk appetit" bladibla... :-) So my real question is: How do you approach it? I do not want to overleverage but I do not want to be lthe stupid child who does not use its funds efficiently...

Thank you very much in advance for your guidance!
Best, Zinot
 
Here is best thing for you to do, do the same thing on the SPY itself, not much worry there if it dips your worse case scenario you hold it and or add more money in the account in the long run it recovers. Your buying value. Its buy and hold on steroids. Depends not only on your risk appetitie but your future income, Wouldnt you buy the SPY if you see it at 220 again?
150?

The problem is with Blue chips is even the best of the best can get knocked out or knocked down. i did what you do for a while and worked well overall made money but the time and focus it took from me watching different stocks was not worth it as compared to watching one index. Plus i got caught in big losers like GE at 17 bucks, Mattel somewhere super high and frontier communication, Over all worked, but again, these names can linger downwards forever or worse, bankrupt, think Sears Rhobuck and Cricut city and blockbuster. They were once blue chips
 
Zinot said:
Hi everyone

I am inversting since 2015 and had (like hopefully most of you) a nice 2020 with a simple value approach to some bluechips which dipped. I started using covered calls on my investments back in 2018 and it worked more or less ok (difficult with this never ending rally! :).

I then started to sell 1-2 cash secured puts per month with the cash not invested (my cash ratio is always around 20% für "special situations".

Due to very low initial margin requeirements and the current market environment I started thinking about writing naked puts on margin on bluechips in Europe and the US. - I THINK that the marked will have a 10-20% correction soon but still want to profit from the put writing in the meantime.

I would try to roll all ITM puts if possible for a credit if necessary for long timeframes if sh... hits the fan.

No to me real question based on the following numbers:
Investments in bluechips: 75k
Cash: 15k
Lombard: 50k

You can read everywhere in the internaet that the used margin should NEVER exceed 50% max! My broker askes for an initial margin of around 10-13%.

So if I write 1 put with a strike of 100$ it would use up around 1000-1300$ of margin.

Which of the above mentioned numbers is now need to be looked at for the 50% to result!?!?

Cash?
Cash+Lombard?
Cash+liquidation value of investments?
all together?

I know that your anser is "it depends on my risk appetit" bladibla... :) So my real question is: How do you approach it? I do not want to overleverage but I do not want to be lthe stupid child who does not use its funds efficiently...

Thank you very much in advance for your guidance!
Best, Zinot
More...

Why do you have to write naked? Sure buying protection has a cost up front, but in the long run, it is not as much as you may think. At least your margin requirements are much lower than a naked position, increasing capital efficiency, and your vega risk is less in case of a shock event. Sooner or later, your position(s) will get hit with a shock event.

Traders more experienced than I can tell you stories of account blowups or forced position liquidations at inopportune times due to higher margin requirements because of major adverse moves and volatility expansion.

Run a few “Stress test” scenarios through your broker’s margin calculator or create your own margin calculator in a spreadsheet.

It took many years for the index put writing strategy to recover after the 2008-2009 bear market, for example.
 
Thank you very much for your replies and both your (very different) perspectives on the initial topic and your approach to options. Im 100% seeing your points and both approaches have more than their place in my head. Please do not understand me wrong but I try to counter argument on your perspective just to get a better picture on what I should do - this does not mean I think you are wrong!


SPY:
  • I see the time benefit and the SPX will never "not rally" midterm :-)
  • Over 20% are in FAANG + T --> All very overvalued!
  • I prefer to write puts on value-games (WFC, LUV, INTC, IBM etc.) - Already a buffer in place for a crash
  • Normaly a higher IV in individuals than SPY --> IF done correctly a roll is easier resulting in a credit
  • Just kiddin: It is just plain simple boring to watch the S&P :-) I like getting to know companies... stupid I know


Bull (credit) put spreads:
  • I work in insurance so I love the limited risk part of it
  • What I hate is the completely lost flexibility - If not over leveraged you can always roll a put (mostly also for a credit down and out) - this is simply much harder or impossible with spreads
  • If I would use only 50% of cash available as margin for naked puts even hard cliffs of the market (>30%) would be still partially cash secured and covered by my lombard it would not result in anything close to a margin call and liquidations - yeah I would pay 3% negative interest but I can live with that as long as we do not have a 10 year depression.

Of course single companies can go bust and that is the main plus of both the above - one of those cases and you give back huge parts if not all of your returns over along time...

I am still unsure how to approach it... I am currently first thinking about increase my cash ratio, due to the fact that I really think it HAS to go downwards at least 10% (Bidens eco money, inflation (not goods but services) will kick in in March/April, generall euphoria and crazyness in the markets....

I think due to this rather conservative thinking I will buy some puts on existing MArch naked puts I have running... I hat to give back some of the premiums but I am big time overleveraged if the cliff shows up soon and I get a lot of assignments...

My head will explode soon thinking about what should I do for the future around the whole options topic... gutt tells me to do spreads and live with the lost possibility to turn "all" into "winners/credits" - I loved that!!!!!

I am already thankful for further insights, tipps and perspecötives!!!!
 
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