Option selling. Too good to continue?

draft730 said:
I think it is more a psychology issue. I loved the feeling that I could make money in any case, unless a serious drop occurred. Also, up until now, I was bullish.For the same reasons, it is really impossible for me to buy a call, knowing that I will pay a premium and the option decays every millisecond. That would make me sick. Deep inside, I am aware that those are fallacies...
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You can buy LEAPS CALL and sell weekly calls to recover the cost of long call :) As you know theta decay on yearly call will be much much smaller than theta decay on weeklies, so you can go far out and still get costs back. Just divide the cost of long call by 52 and sell weekly each week to recover the premium outlay.. Or maybe stop doing it for a week or two after big drops to allow SP500 to recover and then continue.. Beware this can clip some upside, if you sell like 3% out and SP500 rises more than 3% that week, but go check how many 3+ % weeks we had? not many. And also you will outperform during sell-off weeks so this partly offsets.. Just a thought.. :)
 
Tomaz26 said:
You can buy LEAPS CALL and sell weekly calls to recover the cost of long call :) As you know theta decay on yearly call will be much much smaller than theta decay on weeklies, so you can go far out and still get costs back. Just divide the cost of long call by 52 and sell weekly each week to recover the premium outlay.. Or maybe stop doing it for a week or two after big drops to allow SP500 to recover and then continue.. Beware this can clip some upside, if you sell like 3% out and SP500 rises more than 3% that week, but go check how many 3+ % weeks we had? not many. And also you will outperform during sell-off weeks so this partly offsets.. Just a thought.. :)
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And what do you do once SPX has corrected by 5% and you can't sell weekly calls above the long strike because they are worth nothing?

Sell closer to spot --> you will be short D if any rally occurs
Sell further out in time --> less decay
Roll down the long strike?
 
Tomaz26 said:
You can buy LEAPS CALL and sell weekly calls to recover the cost of long call :) As you know theta decay on yearly call will be much much smaller than theta decay on weeklies, so you can go far out and still get costs back. Just divide the cost of long call by 52 and sell weekly each week to recover the premium outlay.. Or maybe stop doing it for a week or two after big drops to allow SP500 to recover and then continue.. Beware this can clip some upside, if you sell like 3% out and SP500 rises more than 3% that week, but go check how many 3+ % weeks we had? not many. And also you will outperform during sell-off weeks so this partly offsets.. Just a thought.. :)
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Interesting... What exact expiration would you suggest for the leap? Also, weekly 3% OTM, wouldn't that be close to 0? Maybe sell monthly?
 
draft730 said:
Interesting... What exact expiration would you suggest for the leap? Also, weekly 3% OTM, wouldn't that be close to 0? Maybe sell monthly?
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Monthly would work too, but no that good. You could go further out, but at the same time SP500 can rise much more in a month than in a week. And weekly has more time premium etc.. If you go monthly way, you have to spread the cost only by 12 and each month recover 1/12th of the premium outlay. By doing weeklies you can spread it to 50.. But beware, you will not recover the cost week by week. You have to do this for a whole year. For example you can purchase it tomorrow, SP500 falls by 3 % in a week, of course you will be down, because weekly short call will not recover all the money you will loose by SP500 going down.. But if you do it week by week by week and keep all 52 weekly short call premiums (no likely), you can pay for your long ATM yearly call. Or you can play arround, go more ITM, OTM, etc.. Diagonals..
 
samuel11 said:
And what do you do once SPX has corrected by 5% and you can't sell weekly calls above the long strike because they are worth nothing?

Sell closer to spot --> you will be short D if any rally occurs
Sell further out in time --> less decay
Roll down the long strike?
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See my reply lower. This is ofcourse not a perfect strategy and like I said you will not recover week by week. I would stop selling calls after big drop, to allow for SP500 to recover. Sure, if it does not recover you forego one weekly premium or two, but still you will loose a lot less money this way than by being just long underlaying. This works for people that HATE just going long LEAPS and then watch time decay. There will be times when you are overrun by huge SP500 rally and short weekly call clips your return, there will be times when it works perfectly and SP500 goes just to your short weekly strike, there will be times when SP500 does nothing and your long leaps decays a bit, but weekly decays even more etc.. Not a perfect strategy and like I suggested to OP, he can also play a bit with strikes. After huge rally maybe sell weekly ATM, after big drop, go further out or even abstain from selling. Or just do it mechanicaly and accept there there will be weeks when you miss.. After a year I think you still should be better of than just going long leaps. Or not, anything can happen :)
 
Tomaz26 said:
See my reply lower. This is ofcourse not a perfect strategy and like I said you will not recover week by week. I would stop selling calls after big drop, to allow for SP500 to recover. Sure, if it does not recover you forego one weekly premium or two, but still you will loose a lot less money this way than by being just long underlaying. This works for people that HATE just going long LEAPS and then watch time decay. There will be times when you are overrun by huge SP500 rally and short weekly call clips your return, there will be times when it works perfectly and SP500 goes just to your short weekly strike, there will be times when SP500 does nothing and your long leaps decays a bit, but weekly decays even more etc.. Not a perfect strategy and like I suggested to OP, he can also play a bit with strikes. After huge rally maybe sell weekly ATM, after big drop, go further out or even abstain from selling. Or just do it mechanicaly and accept there there will be weeks when you miss.. After a year I think you still should be better of than just going long leaps. Or not, anything can happen :)
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You don't know anything about trading vol.
 
I left Wall Street for the same reason..Not my smartest move in hindsight:)

I'm back now,and the funny thing is I enjoy it more than ever,but I don't start at the screen all day



Wheezooo said:
I was exhausted, and no longer took pleasure in doing it. So I stopped.
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taowave said:
I left Wall Street for the same reason..Not my smartest move in hindsight:)

I'm back now,and the funny thing is I enjoy it more than ever,but I don't start at the screen all day
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I sympathize with both of you. It's been a decade and there are times when I am a little less motivated to analyze my cliquets book :(
 
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