Do you factor in margin, either reg t or portfolio, when considering what size to put on? What other etf options do you look at?
Safer option strategies
- Thread starter madbrain
- Start date
Quote from spindr0:
Gee, like I haven't heard that one before!
:eek:
It's okay as long as the next words aren't "for cause"
ASE1245,
Thanks for your response, comments inline.
Well, 90% of the 350k in my 401k/IRA is in equity index funds already - and staying there. I just don't want something with a bit less volatility, and return, for my after-tax accounts. I accept that there must be some risk.
Indeed. That's one of the big questions I haven't asked yet. Backtesting does help to figure out how long it's wise to hold for when there is an unrealized loss, though.
The above would seem to be somewhat in conflict with my goals, though.
Really ? I believe I can sell cash-covered puts in my cash account already with level 2 option trading at fidelity.
I will look what the details are for that, but I'm not really looking for margin at all.
That does sound like an interesting strategy, but it is pricey and there is paperwork (I have run an LLC before, but not for investment purposes). California where I live doesn't allow single person LLCs and has high annual franchise fees. I would have to set one up one out of state for it to make sense.
Thanks for your response, comments inline.
Well, 90% of the 350k in my 401k/IRA is in equity index funds already - and staying there. I just don't want something with a bit less volatility, and return, for my after-tax accounts. I accept that there must be some risk.
Indeed. That's one of the big questions I haven't asked yet. Backtesting does help to figure out how long it's wise to hold for when there is an unrealized loss, though.
The above would seem to be somewhat in conflict with my goals, though.
Really ? I believe I can sell cash-covered puts in my cash account already with level 2 option trading at fidelity.
I will look what the details are for that, but I'm not really looking for margin at all.
That does sound like an interesting strategy, but it is pricey and there is paperwork (I have run an LLC before, but not for investment purposes). California where I live doesn't allow single person LLCs and has high annual franchise fees. I would have to set one up one out of state for it to make sense.
iceman1,
I have actually put in a lot of work over the last few weeks, reading a lot about options, spending in fact my entire last week end on the subject. The questions I posted are the ones that I could not find answers to. I figured actual traders might know. If you do not wish to share your knowledge, there is no need to post.
I have actually put in a lot of work over the last few weeks, reading a lot about options, spending in fact my entire last week end on the subject. The questions I posted are the ones that I could not find answers to. I figured actual traders might know. If you do not wish to share your knowledge, there is no need to post.
KINGOFSHORTS,
Thank you for your great response !
I am willing - I just would prefer not to
Great, then I'm sure you can answer my question about early assignment.
How often does it happen to you, as opposed to assignment at expiration, which will mechanically happen or not happen depending on the price of the underlying ?
I'll take a concrete example. Monday, I virtually sold 30 SPY weekly put contracts at $125 for $1.50 . SPY closed above $125 today, so these puts expired worthless, and I kept the virtual premium. However, SPY went below $125 during the week many times. I didn't get assigned because the OIC virtual trading platform never does early assignment. This is not realistic. How can I estimate when the early assignment would happen ? And how many of the 30 contracts would be assigned early ?
Yes, this would always be the case since I would do this in a cash account.
Yes - the question is how long it's acceptable for these funds to be tied up after assignment. This is why I'm doing all the backtesting. It's not easy to decide if/when to realize the loss. And if one waits too long, the underlying can move down even more (2008).
Hmm. My math said you paid $117 - $2.25 = $114.75 . If SPY is at $107.50, you are underwater by $7.25 .
Yes, I thought about doing that. I wonder if the premium for the deep OTM calls would be high enough to be worth it, though, as opposed to placing a sell/limit order. If there is a long term decline, I guess any premium is better than nothing. But that means you hold the underlying a long time, possibly with a large unrealized loss. At that point the downside risk is higher, and I start to wonder whether it's not better to just buy SPY in the first place and forget about the options altogether.
Indeed. That's why I'm here and not doing any actual trading yet.
Yes, and I am doing that. For the assignment at expiration, I can figure out what that risk is. Still wondering about early assignment, though.
Yes. The plan as I described was to turn around and resell the shares ASAP without realizing loss. But of course that can take a while in a bear market. Your plan of selling deep OTM calls may be better.
Yes, I realize this.
Can you at all comment on the size of the positions and size of your individual trades vs account size ?
Yes, I know those tools aren't predictive . Right now I'm mainly trying to use them to estimate the premiums for past options for backtesting. I can't find a free source of quote data for past options. It would be very useful for backtesting. I will post a spreadsheet with my work.
Thanks. I read about the delta already. Didn't know about the gamma.
Yes, any one stock can go to zero, but the index can't. If it does, we are all in big trouble, probably talking global thermonuclear war, and the account value would be the least of anyone's worries.
Thank you for your great response !
I am willing - I just would prefer not to
Great, then I'm sure you can answer my question about early assignment.
How often does it happen to you, as opposed to assignment at expiration, which will mechanically happen or not happen depending on the price of the underlying ?
I'll take a concrete example. Monday, I virtually sold 30 SPY weekly put contracts at $125 for $1.50 . SPY closed above $125 today, so these puts expired worthless, and I kept the virtual premium. However, SPY went below $125 during the week many times. I didn't get assigned because the OIC virtual trading platform never does early assignment. This is not realistic. How can I estimate when the early assignment would happen ? And how many of the 30 contracts would be assigned early ?
Yes, this would always be the case since I would do this in a cash account.
Yes - the question is how long it's acceptable for these funds to be tied up after assignment. This is why I'm doing all the backtesting. It's not easy to decide if/when to realize the loss. And if one waits too long, the underlying can move down even more (2008).
Hmm. My math said you paid $117 - $2.25 = $114.75 . If SPY is at $107.50, you are underwater by $7.25 .
Yes, I thought about doing that. I wonder if the premium for the deep OTM calls would be high enough to be worth it, though, as opposed to placing a sell/limit order. If there is a long term decline, I guess any premium is better than nothing. But that means you hold the underlying a long time, possibly with a large unrealized loss. At that point the downside risk is higher, and I start to wonder whether it's not better to just buy SPY in the first place and forget about the options altogether.
Indeed. That's why I'm here and not doing any actual trading yet.
Yes, and I am doing that. For the assignment at expiration, I can figure out what that risk is. Still wondering about early assignment, though.
Yes. The plan as I described was to turn around and resell the shares ASAP without realizing loss. But of course that can take a while in a bear market. Your plan of selling deep OTM calls may be better.
Yes, I realize this.
Can you at all comment on the size of the positions and size of your individual trades vs account size ?
Yes, I know those tools aren't predictive . Right now I'm mainly trying to use them to estimate the premiums for past options for backtesting. I can't find a free source of quote data for past options. It would be very useful for backtesting. I will post a spreadsheet with my work.
Thanks. I read about the delta already. Didn't know about the gamma.
Yes, any one stock can go to zero, but the index can't. If it does, we are all in big trouble, probably talking global thermonuclear war, and the account value would be the least of anyone's worries.
spindr0,
Well, I could, but then I would have made 6-10 posts, I figured this one was preferable.
What are the better ones for each end of this respectively?
For example fidelity charges $7.95 + $1 per contract. If I'm trading 1-4 contracts at a time, I may be able to live with it. If I'm trading 30 at a time, it would be too much. What would be the best broker for that many ?
I know theoritically they are. In practice the downside risk with selling cash-covered put only shows up after assignment, not before. So I like it a little bit better than buying underlying and then writing the covered call. However, the short-term put premiums are less than the short-term call premiums for identical strike.
For selling the cash-covered put, I don't need margin. I wouldn't be selling naked calls. That's too risky of a strategy for me.
I considered things like buying the long term put and then selling cash covered short term puts every week along the way. The long term put premium is quite high, though. I'm not sure how much money can be made that way. It would take a while just to break even.
Quote from spindr0:
madbrain,
Consider asking fewer questions per post
Well, I could, but then I would have made 6-10 posts, I figured this one was preferable.
What are the better ones for each end of this respectively?
For example fidelity charges $7.95 + $1 per contract. If I'm trading 1-4 contracts at a time, I may be able to live with it. If I'm trading 30 at a time, it would be too much. What would be the best broker for that many ?
I know theoritically they are. In practice the downside risk with selling cash-covered put only shows up after assignment, not before. So I like it a little bit better than buying underlying and then writing the covered call. However, the short-term put premiums are less than the short-term call premiums for identical strike.
For selling the cash-covered put, I don't need margin. I wouldn't be selling naked calls. That's too risky of a strategy for me.
I considered things like buying the long term put and then selling cash covered short term puts every week along the way. The long term put premium is quite high, though. I'm not sure how much money can be made that way. It would take a while just to break even.
Madbrain
for the expectation of achieving only 3-7% a year, you're not gain any particular edge by trading "safer option strategies". I'm a very active options trader and I wouldn't even bother to trade options if I had the relative low risk tolerance you have.
there are Energy master LP(Nustar Energy LP, Enridge Energy Partners,LP,etc) for example, that pay about that 3-7% and don't require the "surveillance" you'll need to oversee options trading. you have gone to a lot of trouble to have set up even unfunded accounts with multiple brokerages when your very conservative expected rate of returns could easily be achieved with other securities
one more thing:even if you were to raise the returns you'd like to earn from trading in options, be aware that there is a considerable learning curve with options; you can go through a lot of trial and error by yourself, most of which could be avoided by just taking training from a credible training program in options, many of which can taken online.
for the expectation of achieving only 3-7% a year, you're not gain any particular edge by trading "safer option strategies". I'm a very active options trader and I wouldn't even bother to trade options if I had the relative low risk tolerance you have.
there are Energy master LP(Nustar Energy LP, Enridge Energy Partners,LP,etc) for example, that pay about that 3-7% and don't require the "surveillance" you'll need to oversee options trading. you have gone to a lot of trouble to have set up even unfunded accounts with multiple brokerages when your very conservative expected rate of returns could easily be achieved with other securities
one more thing:even if you were to raise the returns you'd like to earn from trading in options, be aware that there is a considerable learning curve with options; you can go through a lot of trial and error by yourself, most of which could be avoided by just taking training from a credible training program in options, many of which can taken online.
You said you don't want to own any stock outright, but I have a suggestion. Why not buy a bulk of shares paying a hefty dividend, and hedge most of your position. This would eat up some of the dividend payments your receiving but hey, easy low risk money.
Cruched the numbers on $100,000 worth of AT&T shares. You would make 2% a year trading the next month contract for an 100% hedge of your position.