Can you explain "15% shock-equity"? I get the concepts, but the jargon escapes me.
Options premium income. How much is too little?
- Thread starter allamut2009
- Start date
Robert Morse
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The OCC, in a PM account, determines the margin requirement by examining the loss incurred from either -15% or +15%. They use their own option values and skews. Since the OCC knows that is too general to cover market risk on all symbols, they expect clearing members to have a process in Place for risker symbols and strategies.
https://www.theocc.com/risk-management/rbh/
https://www.theocc.com/risk-management/rbh/
The premium from selling options should be proportional to the level of volatility in the underlying. For example you wouldn't expect to take in as much premium on a stock with 45% IV as a stock with only 18 IV. Theres also other factors involved such as the days to expiration, the delta of the strike, and so on.
If the premium earned as % of the underlying purchase price can bring in more than 1% on a 30 day period Im happy because at an annualized rate that is decent compared to the buy and hold returns on the SPY. The return on junk bond fund would be more appropriate to compare than a risk free rate. A 10 year treasury would yield you around 2.3% a year... and its not without duration risk either. At that duration a rise in rates of 1/2% could mean a drop in price of 5%.
But I wouldn't risk capital on any random stock. I study the fundamentals and technical price action first. Then I sell this short put premium on S&P500 stocks I'm willing to go long on at the strike if assigned or willing to hold the stock long when selling the covered call.
If the premium earned as % of the underlying purchase price can bring in more than 1% on a 30 day period Im happy because at an annualized rate that is decent compared to the buy and hold returns on the SPY. The return on junk bond fund would be more appropriate to compare than a risk free rate. A 10 year treasury would yield you around 2.3% a year... and its not without duration risk either. At that duration a rise in rates of 1/2% could mean a drop in price of 5%.
But I wouldn't risk capital on any random stock. I study the fundamentals and technical price action first. Then I sell this short put premium on S&P500 stocks I'm willing to go long on at the strike if assigned or willing to hold the stock long when selling the covered call.
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Just to be specific, 10 year treasury does not have 10 year duration. Currently from WSJ figures 10 year treasury has 8.75 years of duration and 30 year bond has 20.106 years. Your overall point still correct