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Put Writing timing
- Thread starter RobtF
- Start date
around 30 days. i wouldnt write on individual stocks though. use etfs or indexes. specific stock risk eventually wrecks put selling portfolios.Quote from RobtF:
If I wanted to write puts for income with portion of portfolio (on stocks I wouldn't mind owning) is there a sweet spot, say two, three weeks before expiration?
Depends on your view, tolerance for risk, and the specific situation at hand. What are the options pricing and the fundamental view of the stock at that time.
There's no maximizing formula. If there were, someone would have entered it into a computer and that formula would have been arbed away.
There's no maximizing formula. If there were, someone would have entered it into a computer and that formula would have been arbed away.
The problem with your question is,... it's too theoretical.Quote from RobtF:
If I wanted to write puts for income with portion of portfolio (on stocks I wouldn't mind owning) is there a sweet spot, say two, three weeks before expiration?
Applying theoretical to the "real world" of investing, will cause problems for you.
For example, theoretically, 3 weeks out is when theta really starts picking up steam, and that final week the theta train is rolling downhill super fast.
But in the real world, the issue is NOT simply one of time decay.
The issue is always about the "blend".
That "blend" being,... "time, desired strike price, % return, and dollars earned."
While you may like a theta friendly 3 week trade, your desired strike may be too deep OTM.
Thus making the bid/ask either really puny, and/or too wide and thus difficult to fill. For example $0 - $0.20. Don't assume you'll get the middle on such a S-T trade.
That 3 week trade may give you a fantastic, super high annualized % return, ( as most 1 - 3 week trades do).
But the dollars earned may not fill your car with gas.
Thus, it's probably best to consider trades in the 1 - 3 month range.
That range allows you to evaluate various choices, as to which combination offers the optimal "blend" of.... strike selection, % return, dollars earned, and time decay.
Quote from Put_Master:
The problem with your question is,... it's too theoretical.
Applying theoretical to the "real world" of investing, will cause problems for you.
For example, theoretically, 3 weeks out is when theta really starts picking up steam, and that final week the theta train is rolling downhill super fast.
Just a general comment fwiw.
It's not an issue of being theoretical. If you don't get useful results then it's just that your theory is wrong or not good enough. The problem (or the good thing) is that for most real life situations there is no consistent theory and you either have to come up with your own or blend in an empirical approach and this is where it goes wrong for most ppl.
For example in poker it would be impossible to beat an opponent who plays in an optimal game theory way. But so far AFAIK only a very small part of poker has been solved so we can still use our tradiditonal (semi)empirical approach to beat other players who have a worst empirical model.
learn your Greeks.
the closer to expiry you get , yes you get more theta $$ but you also get more delta risk
you have to put it on an risk profile graph find your probablites of success and then draw the breakevens on a chart in order to get a good idea of where you think your puts will expire
the closer to expiry you get , yes you get more theta $$ but you also get more delta risk
you have to put it on an risk profile graph find your probablites of success and then draw the breakevens on a chart in order to get a good idea of where you think your puts will expire
As a noob you are better off with covered calls - I know the experts will disagree with me, but they're wrong.
New investors can easily make judgment errors when calculating margin, and if a stock dumps don't know how to sell or fix their situation.
Buying a stock and then selling a covered call really makes you think more about actually owning a stock. I've got a friend who sells naked puts on high IV, lots of premium, no-drug-yet Biotechs and constantly gets nailed when stocks crash, and then says "I didn't want to buy that" ...
New investors can easily make judgment errors when calculating margin, and if a stock dumps don't know how to sell or fix their situation.
Buying a stock and then selling a covered call really makes you think more about actually owning a stock. I've got a friend who sells naked puts on high IV, lots of premium, no-drug-yet Biotechs and constantly gets nailed when stocks crash, and then says "I didn't want to buy that" ...