Anyone looking for newbie post of the month, look above this line LOL
Question regarding selling puts for premium
- Thread starter masudhossain
- Start date
Anyone looking for newbie post of the month, look above this line LOL
He sounds like a scarred or jaded or failed options trader.
it's good to be subjective and post your personal experiences, but one should be more objective/neutral about the situation.
I think the product you are trading has little to do with profitability - provided you have a positive expectancy and risk mgmt. There are a lot of things that guys here trade successfully using options that I would never touch. Obviously they are comfortable with the product and have rules in place to make it work.
Back to the earlier post about tracking all the greeks... just keep it simple to start - you really don't need to do all of that to get into the game. Take something simple like a Dec 31 2040/2080/2120 call butterfly on ES right now trading for about $8. You pay $8 and at the end of the month you are profitable everywhere between 2048 and 2112. Start small and simple and get comfortable with the product and the behavior of your positions.
Back to the earlier post about tracking all the greeks... just keep it simple to start - you really don't need to do all of that to get into the game. Take something simple like a Dec 31 2040/2080/2120 call butterfly on ES right now trading for about $8. You pay $8 and at the end of the month you are profitable everywhere between 2048 and 2112. Start small and simple and get comfortable with the product and the behavior of your positions.
Selling options isn't inherently bad. single stock options aren't unreliable (whatever that means).
However, the payouts in selling options is asymmetric and that is basically unavoidable. You are being compensated for this in the form of theta/time value. Your goal is to find where you are overcompensated and trade that. Sometimes you will get things wrong. Hopefully in the long run, you will get enough things right to generate an acceptable level of return.
However, the payouts in selling options is asymmetric and that is basically unavoidable. You are being compensated for this in the form of theta/time value. Your goal is to find where you are overcompensated and trade that. Sometimes you will get things wrong. Hopefully in the long run, you will get enough things right to generate an acceptable level of return.
You are right about the dumb money part: That is me as I only traded equity options
. But if I trade index funds I would be playing against the pros and get killed in no time. For the benefit of others new to Options, let me share my experience:
What I learned after many tries (since 2013) was that as long as I traded options on equities I already own long term, I was profitable, otherwise I lost money. My profitable trades were all directional and long. I was not doing well selling calls or puts - profitable but not as much as buy and hold and quite often, the stocks were called away or I was put. Now, I only write calls and puts occasionally to partially pay for the longs. Being long options allowed me to beat buy and hold since 2014. I have not graduated to trading combinations yet, only paper trade spreads, delta neutral, volatility trade, etc. So far the paper profits were not impressive and I am trying to figure out why I am not doing as well as your guys.
I have much to learn about managing my gains and losses, often not hedging well and let profits slipped away. Examples were WFM, BIIB, from up >100% to down >80% in 2015, should have exited or hedged.
I think there are two types of traders, the pros like most of the people here and armatures like me who use options as augmentation for equity investment/portfolio management.
Comments and coaching are welcome.
Regards,
Some comedians here- I trade with the pro's-the people who make money out of the dumb sheeple-and I can tell you that equity options are for those who like to give their money away to the pro's. After 16 years of profiable trading I am worn out trying to talk sense to idiots so, good luck. Think on next time you are lying awake at night because your dumb stock just got hammered. You'll wish you traded the indexes, but of course you won't -because your account is blown up.
Short Index vol trades Don't ever blow up? Did your pro trading friends tell you that?
Perhaps you are the sheeple if after trading volatility for 16 years you think vega is "unreliable" and single stocks are "unreliable."
Vol is vol. all that matters is what you pay/receive for implied and what is realized. You need the market to be mispriced and index options are the most analyzed options in the world. Generally the more watched a financial asset is, the harder it is to be mispriced.
Your track record is your track record. I'm happy for you that you've been profitable for 16 years, but how does what you did in that time have any correlation to other peoples trading? You understand that each trader finds their own way right?
I've also been profitable for a long time, and I don't rule out equity options. I wouldn't say it's a major part of my trading, but when the right conditions are met, why not?
Option trading is the most diverse type of trading there is. Blanket opinions should be checked at the door if you want to have a diverse tool box of strategies at your disposal.
BTW: "I trade with the pro's..." Cringe worthy statement
I agree. That was my finding and that was why I ended up trading illiquid equity options. I also tended to go where uncertainties in direction and price movement were higher. I probably am not making sense?
While that is true, too much size is detrimental regardless of the vehicle you are trading. I have known people that went "all in" on penny stocks and were wiped out. If you are risking more than 10% of of your account on any one trade you are asking for trouble and again that doesn't matter what you are trading. I would rather risk 2% of my account on many trades than 100% on an all or nothing trade...that would be pure stupidity.
However saying there is "no safe way to trade options" is just being short sighted. In fact one thing about trading options is the ability to limit downside to only what you feel comfortable with. With straight equities what happens if you are long and something like the CEO getting arrested happens (ala Enron)? Now what happens if you were "all in"?
Since you like equities, let me give you an example of a great way to use options. Imagine if you own XYZ stock at $100 and you put in a stop loss order at $95. Now overnight news breaks that the company's warehouse where they were storing the new version of widgets they were supposed to release next week went up in flames along with all of their inventory. The next day their stock gaps down to $70. You are going to take a $30/share hit. If you had bought $95 puts instead of the stop loss order your max loss would only be $5/share + cost of the puts. Sounds pretty safe to me.
Here is another one, the FDA is set to announce if they are going to approve Pfizer's new miracle drug next week, as an equity trader you don't know if you should go long or go short but you know the decision is going to cause a big move one way or another but you have to wait to know which way to jump and then if not fast enough you might miss the move. An options trader would just put on a long straddle risking ONLY the cost of the option and make money either way.
In either of these cases (and there are LOTS more) where is my big risk that is going to blow out my account?
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