put writing = collecting free $$$???

[gnome]

Quote from smilingsynic:

"... most premium selling blowups are caused not by the market, but by excessive leverage..."

The huge majority of blowups are caused by excessive leverage in some form or another.

 

[makloda]

Quote from gnome:
And BTW, where in the HELL did you ever get the notion that put writing was "risk free money"? Sheesh!

Fact is: It appears that selling a ATM put against the ES/SP500 without any leverage and putting the collateral in T-Bills beats the SP500 over a full market cycle both in annual ROR% as well as Std. Dev. of returns.

While not risk free, it seems it was historically less risky than good ole' buy and hold.

 

[ASusilovic]

Quote from makloda:

Fact is: It appears that selling a ATM put against the ES/SP500 without any leverage and putting the collateral in T-Bills beats the SP500 over a full market cycle both in annual ROR% as well as Std. Dev. of returns.

While not risk free, it seems it was historically less risky than good ole' buy and hold.

WOW, at least ONE person did understand my suggestion in this forum...

 

[gnome]

Quote from makloda:

Fact is: It appears that selling a ATM put against the ES/SP500 without any leverage and putting the collateral in T-Bills beats the SP500 over a full market cycle both in annual ROR% as well as Std. Dev. of returns.

While not risk free, it seems it was historically less risky than good ole' buy and hold.

This argument is SO INCREDIBLY STUPID... if you can't figure our why, you DESERVE to lose your money.

 

[makloda]

Quote from gnome:
This argument is SO INCREDIBLY STUPID... if you can't figure our why, you DESERVE to lose your money.

Your reply speaks for itself. I guess when you want to stop looking at numbers and facts it's more comfortable to spew out profanities rather than argue.

 

[Mvic]

Timing is still key, you have to determine where you think we are in the business cycle to see if it make sense starting to employ this strategy now.

 

[ASusilovic]

Quote from Mvic:

Timing is still key, you have to determine where you think we are in the business cycle to see if it make sense starting to employ this strategy now.

Agree. Timing is THE important factor !

 

[Thug_Life]

Quote from smilingsynic:

There are many ways to lessen the risk of selling puts. Cover the put at a predetermined level by putting a gtc stop loss. Sell futures if the S&P hits a certain level (drops). Covered puts are another way (buy an otc put for "insurance").

I agree that those would reduce risk, but stop losses don't protect against large overnight gap movements, right?

September 2001 would be an interesting month in which to backtest the naked put writing strategy.

 

[makloda]

Quote from Thug_Life:
September 2001 would be an interesting month in which to backtest the naked put writing strategy.

-13%

31-Aug-01 657,63
01-Oct-01 571,92

 

[Thug_Life]

How do the expenses, fees, and liquidity issues factor in? How often can trades be made without these concerns being an issue?


from the CBOE site:

Like many passive indexes, the PUT Index does not take into account significant factors such as transaction costs and taxes and, because of factors such as these, many or most investors should be expected to underperform passive indexes. In the construction of the hypothetical PUT index, the SPX puts are assumed to be written at a certain price on the third Friday of the month. However, there is no guarantee that all investors will be able to sell at this price, and investors attempting to replicate the PUT Index should discuss with their brokers possible timing and liquidity issues. Transaction costs for a put writing strategy such as the PUT could be significantly higher than transaction costs for a passive strategy of investing in Treasury Bills.