Selling Options for passive income by Robert Kiyosaki

[newwurldmn]

GARCH is a typical model for volatility and Cox-Ingersoll is the one for interest rates. I change them independently of each other to test the robustness of strategies under different market conditions.

i am familiar with GARCH and with Cox-Ingersoll (but only a little bit).

At the end of the day you have to predict a market event (rates will go down) and then predict how other factors will respond to that. The best way to predict is to see what happened in the past.

You can shock your book to see how different scenarios can play out. But history is a pretty good guide of the future.

(This is coming from a guy who neither backtests nor simulates strategies)

 

[Sergio123]

i am familiar with GARCH and with Cox-Ingersoll (but only a little bit).

At the end of the day you have to predict a market event (rates will go down) and then predict how other factors will respond to that. The best way to predict is to see what happened in the past.

You can shock your book to see how different scenarios can play out. But history is a pretty good guide of the future.

(This is coming from a guy who neither backtests nor simulates strategies)

I would say you have to set yourself to be able to take advantage of upside potential opportunities while capping your risk. A little bit of prediction, but a lot more risk management.

Case in point, just look at today. There is no way to predict that yields would crash and the market would surge. All that you can do is prepare for it, but also prepare if everything went in the other direction.

But then again, I remember it did about the same thing almost exactly a year ago. So maybe there is some seasonality, so I don't discount back testing altogethor.

 

[newwurldmn]

I would say you have to set yourself to be able to take advantage of upside potential opportunities while capping your risk. A little bit of prediction, but a lot more risk management.

Case in point, just look at today. There is no way to predict that yields would crash and the market would surge. All that you can do is prepare for it, but also prepare if everything went in the other direction.

But then again, I remember it did about the same thing almost exactly a year ago. So maybe there is some seasonality, so I don't discount back testing altogethor.

last year, the risk profile of the market was very different than today.

so that's where the back testing may not matter.

i think montecarlo simulations don't do much good. but i can see shocking your book to understand how it would perform in different scenarios. (like vol up, rates down; vol up, rates up)

 

[ironchef]

Been there done that. Thanks for the suggestions but for now I'm loving futures and really need to focus on this one thing.

Besides, Options left a bad taste in my mouth. Reminds me of pain, the pain of being stupid.

I share your feeling. Been there done that with intraday trading. But I am trying to redeem myself there.

 

[ironchef]

This is the second post where you mention passive and big/huge income in the same sentence. For some odd reason you leave out "blowup"..

Selling options + huge returns + passive investing = huge blowouts

There is a way to do it:

Leverage to the hilt, throw everything including the kitchen sink at it but only do it once and retire from writing options.

The odds are in your favor if you don't repeat.

 

[mervyn]

No need to leverage, few times a year you see the big drop in the best companies, buy leap calls max out all the available cash you have, easily come out to the other side.

 

[ironchef]

No need to leverage, few times a year you see the big drop in the best companies, buy leap calls max out all the available cash you have, easily come out to the other side.

Not trying to argue against your thesis. But the devil is in the details.

In real time it is extremely difficult to time it because you never know when that "big drop" is the real big drop. MM are not stupid and willingly hand you their money.

I am not saying it is not a winning strategy. I am saying in practice it is hard, been there done that for this amateur speculator.

 

[taowave]

Then Ill say it...Stock drops hard,Implied goes up and gets smashed on the rally...

And you do realise with market .01 to .10 wide,Market makers are not a factor..

Ild be more concerned with what Vol I am paying

Not trying to argue against your thesis. But the devil is in the details.

In real time it is extremely difficult to time it because you never know when that "big drop" is the real big drop. MM are not stupid and willingly hand you their money.

I am not saying it is not a winning strategy. I am saying in practice it is hard, been there done that for this amateur speculator.

 

[mervyn]

Not trying to argue against your thesis. But the devil is in the details.
To entry or sell puts
In real time it is extremely difficult to time it because you never know when that "big drop" is the real big drop. MM are not stupid and willingly hand you their money.

I am not saying it is not a winning strategy. I am saying in practice it is hard, been there done that for this amateur speculator.

Case in point, Walmart and baba yesterday, back to recent months low, good trades to buy calls or sell puts further down, depends on if you want to own it or not. I am comfortable buying atm calls on baba 6-12 months out.

 

[ironchef]

Then Ill say it...Stock drops hard,Implied goes up and gets smashed on the rally...

And you do realise with market .01 to .10 wide,Market makers are not a factor..

Ild be more concerned with what Vol I am paying

Absolutely.

My frame of reference is to compare it to the cost to buying the underlying on margin. Often, there is a crossover and whether I use margin or long option depends on it.

In both cases, IV, margin interest are proxies of market opinion vs expected value at expiry. One advantage of option vs margin is limited risk but there is no free lunch, you pay for that protection.

Entry, TTE, premium, strike... are a complex mix based on a set of assumptions and computations.