Retired, 450k fun money, lets see what happens - SPY Options
- Thread starter Wise Old Man
- Start date
CORRECT
This strategy will never give you a chance to reap a big reward, that you will need to offset the inevitable huge loss when the underlying drops like a rock.
It's unlikely that the strategy will outperform the SP unless the market is sideways or down since you won't be getting assigned regularly in an up-market and will not reap the benefit of owning the underlying. In addition, when you get assigned and sell calls you will choke off profits by limiting how far the underlying will be able to run. Also, when I say you may outperform the market in a downturn, I want to point out that your loss may be somewhat less than the overall market which would still qualify as outperforming the market. ---Since SP is, in it's normal state, trending upwards, the strategy will produce inferior results the vast majority of the time.---I also believe that you are not factoring in dividend/yield when calculating the overall performance of the market.
Last edited:
How so?
Yeah, okay...they don't trade the same. Margin is different, etc. But they ARE synthetics. Post was aimed at newer traders...
B1,
I believe you have raised some reasonable objections.
1. This strategy provides LIMITED downside risk compared to owning the underlying outright.
2. This strategy LIMITS FULL upside appreciation compared to owning the underlying outright. (a little more on this later.)
3. This strategy does not take FULL advantage of premium capture by selling upside and downside exposure at the same time.
However, I would like to point out some previously addressed comments by the OP.
1. OP has chosen a style that makes him comfortable, and he is not overleveraged. (I know you agree with good risk management!)
2. He has chosen a strategy that is not very time intensive. Yes, he could just own SPY (even less time intensive), but he has a desire to "attempt" to beat the index. OP could trade SPY or SPY options, but that is more time intensive.
3. OP has explained his strategy varies from the "traditional wheel" by selling weekly premium and attempting to sell calls at high enough levels that give him a chance to capture decent sized weekly appreciation when SPY has been "put" to him.
Certainly, cases can be made for selling, buying, or trading options. Certainly, cases can be made for buying, selling, trading stocks/etfs.
Points for further discussion:
1. You mention he may not have considered dividends and interest. Do you believe these variables are not "priced in" regarding option prices?
2. Many (non margin) account types may not "allow" for all option strategies. For example, IRAs and other retirement accounts may not allow selling spreads, much less nakeds (i.e. naked calls) Therefore, selling strangles may not be an option for all. Even in margin accounts, it is possible strategies may be limited due to account size, investor/trader experience, etc.
I'm sure you can appreciate that the OP has selected a "long only" instrument for his strategy. I am glad he has shared his journey, as I am glad you have shared yours.
Good trading all,
Newbie
I believe you have raised some reasonable objections.
1. This strategy provides LIMITED downside risk compared to owning the underlying outright.
2. This strategy LIMITS FULL upside appreciation compared to owning the underlying outright. (a little more on this later.)
3. This strategy does not take FULL advantage of premium capture by selling upside and downside exposure at the same time.
However, I would like to point out some previously addressed comments by the OP.
1. OP has chosen a style that makes him comfortable, and he is not overleveraged. (I know you agree with good risk management!)
2. He has chosen a strategy that is not very time intensive. Yes, he could just own SPY (even less time intensive), but he has a desire to "attempt" to beat the index. OP could trade SPY or SPY options, but that is more time intensive.
3. OP has explained his strategy varies from the "traditional wheel" by selling weekly premium and attempting to sell calls at high enough levels that give him a chance to capture decent sized weekly appreciation when SPY has been "put" to him.
Certainly, cases can be made for selling, buying, or trading options. Certainly, cases can be made for buying, selling, trading stocks/etfs.
Points for further discussion:
1. You mention he may not have considered dividends and interest. Do you believe these variables are not "priced in" regarding option prices?
2. Many (non margin) account types may not "allow" for all option strategies. For example, IRAs and other retirement accounts may not allow selling spreads, much less nakeds (i.e. naked calls) Therefore, selling strangles may not be an option for all. Even in margin accounts, it is possible strategies may be limited due to account size, investor/trader experience, etc.
I'm sure you can appreciate that the OP has selected a "long only" instrument for his strategy. I am glad he has shared his journey, as I am glad you have shared yours.
Good trading all,
Newbie
Yes but only by a small amount.
Thanks for the posting----by way explanation of my view, in a covered call you have the potential of a gain from the underlying up to the strike price of the covered call. In a short put you may not get assigned and end up with a miniscule profit.
CORRECT