Put buying Q

W

Whistlingleaf

Anyone have advice on what put strikes to purchase ?

I buy puts on high flyers like AMZN, LNKD, & etc

Is it better to buy a small amount of ITM or more ATM or even more OTM ?

Duration shorter or longer ?

Our better to buy put spreads ? or even put flys ?

I've had mixed success which isn't bad given the market can't seem to go down anymore. I feel the market will crack - just not when.

I don't have a good set of rules for put buying - I know there are times I should sell and throw in the bucket, but I hold too long and decay kills me.
 
Wuz the story?

Have you only been buying calls?

Depends how far u are away from expiry IMO. 1 month out and u could afford to take on a bit more risk with Otm trading. Whilst 3 days to expiry an ATM / ITM option would be your only choice.

Of course iv never actually bought to open any itm options. Not enough risk for moi.



:D
 
With options you really need to have a time frame in mind for how long you want to give the stock to do what you think it's going to do. For example, you say you're going to give AMZN one month, and during that time frame you think the stock can drop 10%.

From there you decide on an expiration keeping in mind that shorter term options move faster in percentage terms (both for you and against you), and longer term options move slower. Expect a quicker move in the stock? Then use shorter term options. Slower move? Use longer term. Buy options with at least two weeks (just a suggestion) longer than your expected time frame.

As for strike selection, what are you trying to achieve? Higher returns come with ATM to OTM options. Lower returns with ITM. You might decide that you want to buy the put that produces a 100% profit with the least amount of stock movement. In that case you'd go with a slightly OTM option.

Or maybe you want the option that provides the highest % return if the stock hits a certain price. In that case you'd use some modeling program (probably on your broker's platform) to find the best strike. For illustrative purposes only, take a look at the attached picture just to have a visual for strike selection.

Finally, have a trade plan that dictates your profit or loss exit; and a time exit in case neither the profit or loss exit triggers.
 

Attachments

rule 1: the cheapest one, if strike a costs 0.2, and strike b costs 0.1,buy B. the same applies to put/call, always bet on the cheaper side. BUY LOW and SELL HIGH, common sense. chance to win isabove 50%.

rule 2: current market +- one strike of out of money option for example, ES 5point between each strike, I will buy call ES+15(or10) out of money call or vice visa.

rule 3: the near to the expiration, decrease "OTM" +/_ amount until on the current market.

rule 4: never buy ITM, brokers will ask you margin they assume you want phsical develery.

rule 4: do not trade options when the market sidelines,trade the underlying. onlywhen market moves big or upsidedown quickly, drmatical. or has obvious direction to go.
 
Well I'm looking for huge moves down in single stocks.

I ran a screen at finviz of stocks with PS >10 - Market Cap >50m and stock >5$ and I got 140 results.

I figure about 60 of them could go down 50-70% when the liquidity bubble bursts. (I took out oil trusts and some of the stocks that don't have alot of revenue by nature.)

Normally I'm a premium seller on stocks I think won't go down (Naked Put/CC's.)

I can't recall this many stocks with so little (or no) revenue trading at such ridiculous valuations since the dotcom bubble burst - problem of course is this might run for another year or two ... who knows when hedgies can borrow at nil and leverage up to insane levels.
 
And don't forget this very important factor: volatility!
A higher volatility option is by definition riskier than
a low vola option. But, my calculations/simulations indicate that
a lower vola option (at entry) is better, also in terms of returns
than a higher vola options.
Because: a lower vola option with time will most likely gain vola,
and this is of course good for the holder.
The reverse is dangerous: a higher vola option will with time settle back, ie. losing vola, losing intrinsic value...
--> see the effect of "volatility crunch", same story...

I prefer 20% to 30% vola options at entry over 60+% vola options.
And remember: every single strike has its own vola, the vola for the same strike even differs among put and call, that's so obvious, but some people could miss the difference as options data at yahoo and google doesn't give you the individual volatilities, one rather needs a professional platform (IB TWS is not bad) to get these numbers.

Attached two tables, one with 20% vola the other with 60% vola:

<code>
Spot=100.000 Strike=100.00 ExpDays=20 HoldDays=5 IRpct=0.000000% VolaPctS=20.00000% --> Call=2.243053 Put=2.243053

Day 1 : Annual : Vola=20.00% +1SD=22.14% -1SD=-18.13%
Daily : Vola=1.26% +1SD=1.27% -1SD=-1.25%
Period(1 days) : Vola=1.26% +1SD=1.27% -1SD=-1.25% C@+1SD=2.9461(31.3%) C@-1SD=1.6597(-26.0%) P@+1SD=1.6807(-25.1%) P@-1SD=2.9093(29.7%)
deltaSpot% spot call put cprm0PL% pprm0PL%
-----------------------------------------------------------------------------------
5.00% 105.00000 5.61366 0.61366 150.26854% -72.64191%
4.50% 104.50000 5.21206 0.71206 132.36441% -68.25499%
4.00% 104.00000 4.82267 0.82267 115.00490% -63.32345%
3.50% 103.50000 4.44640 0.94640 98.22961% -57.80770%
3.00% 103.00000 4.08408 1.08408 82.07667% -51.66960%
2.50% 102.50000 3.73652 1.23652 66.58199% -44.87323%
2.00% 102.00000 3.40448 1.40448 51.77861% -37.38556%
1.50% 101.50000 3.08859 1.58859 37.69596% -29.17717%
1.00% 101.00000 2.78944 1.78944 24.35925% -20.22284%
0.50% 100.50000 2.50749 2.00749 11.78892% -10.50212%
0.00% 100.00000 2.24305 2.24305 0.00000% 0.00000%
-0.50% 99.50000 1.99631 2.49631 -11.00015% 11.29089%
-1.00% 99.00000 1.76737 2.76737 -21.20714% 23.37495%
-1.50% 98.50000 1.55612 3.05612 -30.62473% 36.24840%
-2.00% 98.00000 1.36236 3.36236 -39.26298% 49.90120%
-2.50% 97.50000 1.18572 3.68572 -47.13797% 64.31726%
-3.00% 97.00000 1.02571 4.02571 -54.27161% 79.47465%
-3.50% 96.50000 0.88172 4.38172 -60.69125% 95.34607%
-4.00% 96.00000 0.75301 4.75301 -66.42907% 111.89929%
-4.50% 95.50000 0.63879 5.13879 -71.52150% 129.09790%
-5.00% 95.00000 0.53814 5.53814 -76.00843% 146.90201%


######

Spot=100.000 Strike=100.00 ExpDays=20 HoldDays=5 IRpct=0.000000% VolaPctS=60.00000% --> Call=6.722057 Put=6.722057

Day 1 : Annual : Vola=60.00% +1SD=82.21% -1SD=-45.12%
Daily : Vola=3.77% +1SD=3.84% -1SD=-3.70%
Period(1 days) : Vola=3.77% +1SD=3.84% -1SD=-3.70% C@+1SD=8.9435(33.0%) C@-1SD=4.9105(-26.9%) P@+1SD=5.0993(-24.1%) P@-1SD=8.6124(28.1%)
deltaSpot% spot call put cprm0PL% pprm0PL%
-----------------------------------------------------------------------------------
5.00% 105.00000 9.67552 4.67552 43.93689% -30.44510%
4.50% 104.50000 9.35534 4.85534 39.17373% -27.77006%
4.00% 104.00000 9.04049 5.04049 34.48986% -25.01573%
3.50% 103.50000 8.73104 5.23104 29.88643% -22.18097%
3.00% 103.00000 8.42707 5.42707 25.36452% -19.26467%
2.50% 102.50000 8.12866 5.62866 20.92520% -16.26579%
2.00% 102.00000 7.83587 5.83587 16.56947% -13.18333%
1.50% 101.50000 7.54875 6.04875 12.29827% -10.01632%
1.00% 101.00000 7.26738 6.26738 8.11247% -6.76393%
0.50% 100.50000 6.99180 6.49180 4.01279% -3.42541%
0.00% 100.00000 6.72206 6.72206 0.00000% 0.00000%
-0.50% 99.50000 6.45820 6.95820 -3.92520% 3.51300%
-1.00% 99.00000 6.20028 7.20028 -7.76218% 7.11422%
-1.50% 98.50000 5.94832 7.44832 -11.51042% 10.80418%
-2.00% 98.00000 5.70236 7.70236 -15.16935% 14.58345%
-2.50% 97.50000 5.46244 7.96244 -18.73854% 18.45245%
-3.00% 97.00000 5.22857 8.22857 -22.21769% 22.41151%
-3.50% 96.50000 5.00077 8.50077 -25.60656% 26.46084%
-4.00% 96.00000 4.77905 8.77905 -28.90501% 30.60058%
-4.50% 95.50000 4.56340 9.06340 -32.11298% 34.83081%
-5.00% 95.00000 4.35384 9.35384 -35.23048% 39.15151%
</code>
 
Quote from Whistlingleaf:Or better to buy put spreads ? or even put flys ?
More...

Yes, that'd be the way I'd go.

Define R/R and go greater size.

Yes, you'll miss a few home runs, but if you're good; you'll be a trader.

Personally, I'd leg into these things and hedge the hell out of delta.

Start small and build up. Manual trading 101. Duh.
 
Puts, putspreads, put flies, long dated options, short dated options, etc.

All are different tools in the toolbox. Your view and risk tolerance will determine what trade makes sense to you.

Just remember optics can be deceiving and you don't get something for free.

So if a product (say a put fly) is giving you better odds or leverage, there's a reason and you better be okay with it.
 
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