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Quote from mark trader:

Got it, thanks!

Now I understand why selling OTM Puts is better because of the low delta and time decay both work in your favor.
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OTM puts have low deltas and small gammas and low probability of expiring ITM but of course it depends on how far OTM you go. You have to remember that gamma distribution for strikes is shaped like a bell curve with the peak ATM. Selling OTM puts is selling what many refer to as cheap gamma because the gammas on the edges of the curve where OTM strikes are is very small.

However as the stock/index moves towards your short strike, the deltas increase and your strike moves up the gamma curve and the speed and acceleration of the premium increase in price picks up drastically. So as your far OTM strike becomes only somewhat OTM to slightly OTM to ATM the gammas pick up in a big way which means the premium is moving against you if you are short puts. Short puts is short deltas and gammas and those "cheap" gammas start to get "expensive" in a hurry and can be painful for your account.

Short puts theoretically have a bounded maximum loss but in reality it is significant and often much larger than your account can bear.

So short puts FOTM start out relatively insensitive to movements in the price of the stock/index but the nature of gamma means that the sensitivity will increase, let's say, exponentially up the gamma curve.

That is why selling naked puts is dangerous:

Limited profit

Significant Risk

Short gammas on edge of curve with potential to move against you fast.

Insensitive FOTM puts can become very sensitive very fast. This why understanding the nature of delta/gamma helps you to better understand the risks of certain positions. I personally do not like to recommend naked puts. Theta is on your side but delta/gamma and, as we shall see, vols can work against you fast which is stacking the deck if you are unaware of the greeks,
 
Quote from optioncoach:

OTM puts have low deltas and small gammas and low probability of expiring ITM but of course it depends on how far OTM you go. You have to remember that gamma distribution for strikes is shaped like a bell curve with the peak ATM. Selling OTM puts is selling what many refer to as cheap gamma because the gammas on the edges of the curve where OTM strikes are is very small.

However as the stock/index moves towards your short strike, the deltas increase and your strike moves up the gamma curve and the speed and acceleration of the premium increase in price picks up drastically. So as your far OTM strike becomes only somewhat OTM to slightly OTM to ATM the gammas pick up in a big way which means the premium is moving against you if you are short puts. Short puts is short deltas and gammas and those "cheap" gammas start to get "expensive" in a hurry and can be painful for your account.

Short puts theoretically have a bounded maximum loss but in reality it is significant and often much larger than your account can bear.

So short puts FOTM start out relatively insensitive to movements in the price of the stock/index but the nature of gamma means that the sensitivity will increase, let's say, exponentially up the gamma curve.

That is why selling naked puts is dangerous:

Limited profit

Significant Risk

Short gammas on edge of curve with potential to move against you fast.

Insensitive FOTM puts can become very sensitive very fast. This why understanding the nature of delta/gamma helps you to better understand the risks of certain positions. I personally do not like to recommend naked puts. Theta is on your side but delta/gamma and, as we shall see, vols can work against you fast which is stacking the deck if you are unaware of the greeks,
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Thanks much for the explanation, it is making more and more sense to me now....
 
Quote from mark trader:

Don't want to get off topic, just wondering if Bear Call spread a better strategy than Bull Put spread in a bear market?
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In a Bear Call Spread you want/need the entity to stay stagnant or decline for you to prosper.
In a Bull Put Spread you want/need the entity to stay stagnant or increase for you to prosper.

Bear Call Spread= Neutral to Bearish
Bull Put Spread= Neutral to Bullish

Both positions are a Credit to your account (cash into -- but with margin).

For a bear market prediction you would consider a Bear Call Spread (credit) or a Bear Put Spread (debit).

The above is a very simplistic explanation... I leave it to optioncoach and others for further info~~~
 
Okay, the result of my 1st papertrade last Friday really confuses me.

I used TOS, please see the attached transactions.

My question is since Friday was a down day, I made a profit doing a Bull Put Spread? Why was I able to buy back the Puts at a lower price, when the SPX went down?
 

Attachments

Do you have the prices of the SPX when you bought and sold? Can't tell if that's Mountain or Pacific Time.

What about the VIX, can you tell what it was when you bought and sold?

And, do you have the bids and offers at the time the spread was opened and closed?
 
Quote from mark trader:

Okay, the result of my 1st papertrade last Friday really confuses me.

I used TOS, please see the attached transactions.

My question is since Friday was a down day, I made a profit doing a Bull Put Spread? Why was I able to buy back the Puts at a lower price, when the SPX went down?
More...
how far out of the money were your options,it was a week before expiration and going into a weekend they suck the premium out in the last 90 minutes on fridays
 
Quote from mark trader:

Okay, the result of my 1st papertrade last Friday really confuses me.

I used TOS, please see the attached transactions.

My question is since Friday was a down day, I made a profit doing a Bull Put Spread? Why was I able to buy back the Puts at a lower price, when the SPX went down?
More...

Well you were only in an hour (it looks like) so the market may have gone up in that hour.

But even if it did drop, the key to understanding option pricing is volatility. If volatility dropped, prices will drop across the board. Obviously, the price will rise a bit because of your delta and gamma if the SPX moves toward the strike, but the drop because of vega may more than offset that. That sort of thing happens all the time right before and after earnings on individual stocks - the stock may move in the direction you want, but your options might still drop in value. It all comes down to volatility.
 
It time was Pacific Standard and the bid/ask info are all on the transaction attachment. As you can see from the transactions, the options were for the month of July. I don't know what the VIX were at the time I placed the orders.
 
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