Covered calls are synthetically the same as short puts. They're what's sold as "simple" and "safe" to naive retirees by "gurus", but have plenty of complexity and risk of their own. If they had even a smidgeon less risk than any other strategy, that's what everyone in the market would use.
Recommended options strategies for beginners
- Thread starter morganpbrown
- Start date
Covered calls are synthetically the same as short puts. They're what's sold as "simple" and "safe" to naive retirees by "gurus", but have plenty of complexity and risk of their own. If they had even a smidgeon less risk than any other strategy, that's what everyone in the market would use.
For the record, it's not that I'm losing money; I'm just not convincingly beating the index. And if I can't beat the index, then I want the P&L volatility to be lower...but it's not. First plot below was my Merrill account (now closed) that had the 11 sector ETFs plus GLD, TLT, VGK, FXI, and EEM. The second plot is my Robinhood account (soon to be closed?). Robinhood account is mainly SPY, IWM, GLD, TLT, and DBC. (I got lucky on HOOD IPO stock and very profitably sold covered calls against it as it cratered from $70 to $40. I had an oops on SPRT).
[Trading PMCC on all ETFs listed above. No attempt to time the market when purchasing LEAPs (typically 120 DTE, 70-80 delta). I sell 50 delta covered calls, 30 DTE, and roll when the delta drops to 35 or rises to 75.]
Not entirely sure what the objective of this conversation is. To beat the index you can buy SPXL. Every day we put money in the casino, form a long or short bias on a given timeframe before you enter an instrument. I trade options mostly to collect premium and long leap contracts, sits on 40-50% cash waiting to enter. Option is a depreciating asset, no need to keep it in your book for longer than necessary. If your bias is wrong, no amount of option trades can save a wrong bet.
heheh, well, vertical spreads it is! There are certainly plenty of knobs to turn... Thanks for the help.
The PMCC discussion was a bit of a detour; my apologies. My objectives with the PMCC index ETF portfolio were to a) beat the "index", and b) do so with lower volatility. I did not succeed.
My original question for the thread was more general. I'm seeking to understand/master basic options trading strategies that a) appropriate for any market condition, and b) with better alpha than the SPY. Wanted to know if I could achieve these goals with basic spreads, or if I need to get into horribly complicated multi-option/expiration positions.
General perspective: the overwhelming majority of people in this country aren't smart enough - OK, let's call it "financially savvy enough" - to simply buy and hold the index. Fuck, what am I saying... most aren't savvy enough to have more than $1k in their bank account, much less invest - that's waaaay too complicated, and only those Evil Capitalist Bloodsuckers know how to do all that... money stuff. Money comes in, money goes out... you can't 'splain that!
Given that you're now an Evil Capitalist Bloodsucker who knows about that stuff (welcome to the brotherhood; we'll get in touch about the dues and the segment of the population you'll be lording it over soon), beating the index can mean a bunch of different stuff. You can B&H and reduce volatility a bit by doing a mix of, say, SPY and TLT, or maybe SPX and something like WPUT - or maybe just writing the weekly puts yourself (you'll need to learn to manage that, though.)
But if you want to do better than that, then it's going to take some work to break through the volatility vs. returns "efficiency frontier" - i.e., get some edge, a.k.a. alpha. But be aware that there's a large time and involvement cost, as well as the possibility of VERY large financial losses while you're learning.
In other words, it's not for everybody - and there be sharks swimming in these waters.
I'd post a vid here of Captain Quint in his final scene, but feel it would not be appropriate at this time. Resistance is not futile.
What is your objective? You just want to beat the index by a few basis points over long term by activity trading? Doesn’t seem worth the effort.
If you not willing to put in huge amounts of time in years/decades to get to expert level, it's called a hobby. Making better than the Indexes is a full time job for most. I agree with @Robert Morse to learn how to trade the underlying, when you do that, you learn how to be directional. Thousands of ways to do it. IMHO