Selling out of the money puts with low risk

Quote from shortbleu:

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With long term investing I'll get rich slowly but surely due to the compounding power of re-investing increasing dividends. I'm not rich yet but it has worked well enough for me over last few years as I continued to invest every month during the recession, thereby averaging down on some of my positions when they were at the bottom and I had only 2 dividend cuts out of 70+ stocks. My dividend income has always been on the up, ALWAYS for the overall portfolio.

The last thing I want to do is pay loads of commssions and being glued to my screens as I used to a few years ago. So yes, I'm a failed trader but a successful investor. It's far less glamorous and I wont get rich quick but it's the way it is. On the flip side, there is very little chance I will get poor or lose it all on a bad trade... :)
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it all comes down to your selection criteria... after all... MCI used to pay a fat dividend, and then it tanked went to $5 still paying a fat dividend, and then they stopped and it became an OTCBB... I will assume you use common sense for picking your stocks and know when to punch out... averaging down to 0 is never fun I would bet...

I dont think one needs to be glued to a screen to be a successful trader, it all depends on one's time frame... and yes, a dividend based strategy will always produce "income" but the capital base is always at risk as well... after all... lets say you had $1MM, took a drawdown of 40% during 2008... but hey, you were making 10% on divs... assuming those didnt get cut or reduced during the whole period (which many were) your recovery period would have taking a while... lets not forget the market recovery is somewhat artificial thanks to the fed...
 
I can completely understand not wanting to manage 70 puts at a time, and I acknowledge that tax issues must be taken into account. That said, I bristle at the ideas people often throw out about pennies & steamrollers, etc., because the math doesn't back it up.

If you read the study I linked, you will see that a naked put strategy beats Buy & Hold and other strategies not only in total return but ALSO in terms of volatility, risk-adjusted return, etc. Higher total return with almost 2X the Sharpe & Sortino ratios should be respected, not dismissed with catchy phrases.
 
Quote from jimmyjazz:

I can completely understand not wanting to manage 70 puts at a time, and I acknowledge that tax issues must be taken into account. That said, I bristle at the ideas people often throw out about pennies & steamrollers, etc., because the math doesn't back it up.

If you read the study I linked, you will see that a naked put strategy beats Buy & Hold and other strategies not only in total return but ALSO in terms of volatility, risk-adjusted return, etc. Higher total return with almost 2X the Sharpe & Sortino ratios should be respected, not dismissed with catchy phrases.
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How does the PUT index outperform the BXM index?
I can buy the PUT index, sell the BXM index and ARBITRAGE!

Taxes as huge as well.
He buys SPY and holds and makes the 9.1%/year.
He "buys" the PUT index and makes 10%/year buy pays 4% in taxes. Next year he has 104% to invest. In buy and hold, he has 109%. Over 30 years after taxes he will have double the wealth with buy and hold.
 
He wouldn't stay in the PUT index, he is selling puts to get assigned on stocks he wants to own, right? At that point he converts to covered calls, which also outperform B&H. The excess return over B&H is taxed short term, and the rest is taxed . . . whenever it's realized.
 
Quote from newwurldmn:


Taxes as huge as well.
He buys SPY and holds and makes the 9.1%/year.
He "buys" the PUT index and makes 10%/year buy pays 4% in taxes. Next year he has 104% to invest. In buy and hold, he has 109%. Over 30 years after taxes he will have double the wealth with buy and hold.
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This doesn't apply to non US based individuals or funds who don't get taxed on cap gains, or get taxed in different ways.

I'm also interested in the PUT and both naked calls indexes because not only they seem to slightly overperform the SPY/SPX/ES with lower volatility, but I also save the witholding tax many offshore funds get hit with. Hence it is better taxwise in my -and many- case.

The study is on the SPX though, OP is trading a selected basket of single stocks, presumably low vol and high dividends.
 
Quote from jimmyjazz:

That said, I bristle at the ideas people often throw out about pennies & steamrollers, etc., because the math doesn't back it up.
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Math and reality are often at odds when calculating an expected return on a short options strategy.

There are far too many variables to be certain of anything, except that at some point in the future the black swan is going to pay you a visit.
 
Quote from jimmyjazz:

He wouldn't stay in the PUT index, he is selling puts to get assigned on stocks he wants to own, right? At that point he converts to covered calls, which also outperform B&H. The excess return over B&H is taxed short term, and the rest is taxed . . . whenever it's realized.
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Why does the put index outperform the bxm?

Almost every month he will create a taxable event. As a result the total amount will be taxed. Either he gets exercised or he doesn't. Of he's outperforming by only 1perxent then he's getting exercised most of the time.

For offshore accounts this is okay.
 
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