Option selling for premium

[Kim Klaiman]

Thanks Kim. Understood loud and clear. I'm just getting at, how are those loss percentages (and heck, the gains) calculated in those histories you linked, that showed percentage losses in the aggregate far exceeding percentage gains, even if there were a lot more gains overall. In my example:

Stock is at 85 and i sell a call at 90 strike for 2 and buy a 95 call for .5. Worst case is that stock goes to 95 or higher. In which case I'm down 5 minus the 1.5 delta on the premium, thus down 3.5. How would this be reflected percentage wise in the loss column of those histories you linked? Do they have some underlying account value that they are using to calculate these percentages and losses? For example, they are using an account with $100 in it, so this trade would be shown as a 3.5% loss? I'm just trying to get a handle on how they are calculating their numbers. Thanks.

They assume allocating your whole account yo those trades. So both 5% gain and 80% loss are on the whole account. This is how they calculate their P/L.

But what many people are missing is that if you gain 5% 10 times and then lose 50%, you are not back to even. You are down significantly.

Of course if you allocate only small portion of your account to the weekly trades and don't compound, you might be fine. But this is something those subscription services don't teach you.

 

[vegamedic]

I’m on track for 27% this year. Not quite to newsletter boy, but my returns are real.

"on track" for 27% this year....it's march.

 

[Sweet Bobby]

"on track" for 27% this year....it's march.

Update. Now on track for 32% this year! It’s called projection.

 

[caacapital]

The unlucky option sellers who's puts expired this week have their years gains wiped out but I guess rolling it will make it better. but the probability was only 5%. This is why you dont sell 0.05 puts. If you were lucky to not have your puts expire this week your probably over 100 points away from your BE

 

[tommcginnis]

The unlucky option sellers who's puts expired this week have their years gains wiped out but I guess rolling it will make it better. but the probability was only 5%. This is why you dont sell 0.05 puts. If you were lucky to not have your puts expire this week your probably over 100 points away from your BE

Eh? While respecting your thoughts on the matter, they are very much prisoner to your very-low estimation of moving risk/positions - it's a lot easier than you think.

 

[caacapital]

what do you mean moving risk? if anyone sold a put naked most or all of the capital is locked up in margin. Unless their trading a million dollar account. The other thing about selling 0.05 options at least in $SPX it must expire because they trade in 0.05 increments. This strategy can work for some time but again my point is this isnt a beginners strategy.

Eh? While respecting your thoughts on the matter, they are very much prisoner to your very-low estimation of moving risk/positions - it's a lot easier than you think.

 

[Saltynuts]

"on track" for 27% this year....it's march.

Hahaha.

 

[Saltynuts]

They assume allocating your whole account yo those trades. So both 5% gain and 80% loss are on the whole account. This is how they calculate their P/L.

But what many people are missing is that if you gain 5% 10 times and then lose 50%, you are not back to even. You are down significantly.

Of course if you allocate only small portion of your account to the weekly trades and don't compound, you might be fine. But this is something those subscription services don't teach you.

Thanks Kim. So in an example where you sell an option for $3, take $2 of those to buy a different option. Both expire worthless. What would the % gain be listed as? Its just weird because you didnt really come out of pocket anything. Thanks.

 

[tommcginnis]

what do you mean moving risk? if anyone sold a put naked most or all of the capital is locked up in margin. Unless their trading a million dollar account. The other thing about selling 0.05 options at least in $SPX it must expire because they trade in 0.05 increments. This strategy can work for some time but again my point is this isnt a beginners strategy.

Neither of us is recommending selling naked 5¢ SPX options. "Beginner" or not, it's just *dumb*.

That said, for any short options bought back at 50¢ (a 10x whack), whether you could buy it back, sell the 25¢-er on bottom, and another 25¢ on top -- that's your choice. But you just cut that position's delta risk in half (roughly). If instead you to buy insurance below that short at 25¢, and sold a 25¢ spread on the other side of the market to pay for it, you've just cut your margin while swinging to revenue neutral. Orrrrrrr, If instead you bought the 50¢ option and went out in time to sell spreads, you cut margin, you get further from the market, and you can lose a little, go revenue neutral, or seek to put some (revenue) in your pocket, as is your want. "Watch the Whipsaw, Brother!"

I map my positions each week by strike and by expiry, and strive to know *exactly* who gets moved first, and where they're going (based on news/fundamentals/market-technicals). I have the inventory mapped via the Black Scholes Merton PDE, and don't really know what I would do without this underappreciated operationalization of what people glibly call The Greeks. And unless the day gets really crazy (Groundhog Day, for example), I have this picture in my mind at all times. Got to!

 

[yobo]

This has never happened to me. I sold 122 puts on YY last week and the stock closed at 121.85.

I was only assigned two out of the 10 contracts I sold. I thought assignment was required but apparently not and the buyer of my puts apparently wanted to be short the stock this morning.

Bad for them, YY is trading up to 125. Anybody ever not had stock put to them when the put option expires in the money?