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Selling Premium - Strategy Never Discussed
- Thread starter robertSt
- Start date
Week Summary - I opened 5 short put positions this week. I rolled 3, I closed 1, and 1 will expire. This series of trades will provide a good opportunity to follow along as I try to manage the positions that moved under my strike.
Trade 2 - GME - Opened 2/12 - Threads #258, #320, #321 - Rolled 10 GME Feb 19 44 puts to Feb 26 41 @ .51 credit
GME is obviously a special case, and I have no idea where it will end up. I bought the 44s back and sold next week 41s for a 52 cent credit, giving me a cumulative credit of 2.03. At the moment it's about 2 and a half points below the new strike, so we'll wait for Monday and reassess. It's now within the range it reached after the announcement of Ryan Cohen to the board, and before the phenomenal frenzy, so maybe it will at least slow its rate of descent.
Trade 3 - FUBO - Opened 2/16 - Thread #283 - BTC 10 FUBO Feb 19 43 puts @ .09, Profit = 1.31 or $1302.74. (1302.74/43000) = 3.02% profit.
Trade 4 - PLTR - Opened 2/16 - Threads #285, #312, #313, #314 -
PLTR was searching for a bottom after the earnings disappointment and the end of the share lockdown. I took a chance it wouldn't breach my 28 strike to collect the nearly 4% premium. I missed and it fell hard, briefly below 25, so I was willing to give back a little over half to try and keep up with it. I came down a point with the same expiration. Then I rolled down to 26 for next week and collected .25, giving a cumulative credit of .67, which is still on track to earn over 1% per week, especially since PLTR has already recovered and is 2.5 points above my strike, comfortable going into the weekend.
Trade 5 - WKHS - Opened 2/17 - Thread #311 - Will expire, Profit = .90 or $893.12 (893.12/31000) = 2.88% profit for 3 days of exposure.
Trade 6 - SPWR - Thread #316 - Rolled 10 SPWR Feb 19 38 puts to Feb 26 36 puts @ .85 credit - Cumulative credit = 1.80
This is hovering about 6 cents over the strike, so I'm very comfortable coming down two points for next week and collecting another 2% plus.
Closed Trades Realized Gains:
Trade 1 - $5082.66 (fees reported incorrectly in #258)
Trade 3 - $1302.74
Trade 5 - $893.12
Total - $7278.52 or 6.38%
Let's throw out the first GME trade since it was such an anomaly. That leaves a gain of 2.96% this week ($2195.86/$74000).
Trade 2 - GME - Opened 2/12 - Threads #258, #320, #321 - Rolled 10 GME Feb 19 44 puts to Feb 26 41 @ .51 credit
GME is obviously a special case, and I have no idea where it will end up. I bought the 44s back and sold next week 41s for a 52 cent credit, giving me a cumulative credit of 2.03. At the moment it's about 2 and a half points below the new strike, so we'll wait for Monday and reassess. It's now within the range it reached after the announcement of Ryan Cohen to the board, and before the phenomenal frenzy, so maybe it will at least slow its rate of descent.
Trade 3 - FUBO - Opened 2/16 - Thread #283 - BTC 10 FUBO Feb 19 43 puts @ .09, Profit = 1.31 or $1302.74. (1302.74/43000) = 3.02% profit.
Trade 4 - PLTR - Opened 2/16 - Threads #285, #312, #313, #314 -
PLTR was searching for a bottom after the earnings disappointment and the end of the share lockdown. I took a chance it wouldn't breach my 28 strike to collect the nearly 4% premium. I missed and it fell hard, briefly below 25, so I was willing to give back a little over half to try and keep up with it. I came down a point with the same expiration. Then I rolled down to 26 for next week and collected .25, giving a cumulative credit of .67, which is still on track to earn over 1% per week, especially since PLTR has already recovered and is 2.5 points above my strike, comfortable going into the weekend.
Trade 5 - WKHS - Opened 2/17 - Thread #311 - Will expire, Profit = .90 or $893.12 (893.12/31000) = 2.88% profit for 3 days of exposure.
Trade 6 - SPWR - Thread #316 - Rolled 10 SPWR Feb 19 38 puts to Feb 26 36 puts @ .85 credit - Cumulative credit = 1.80
This is hovering about 6 cents over the strike, so I'm very comfortable coming down two points for next week and collecting another 2% plus.
Closed Trades Realized Gains:
Trade 1 - $5082.66 (fees reported incorrectly in #258)
Trade 3 - $1302.74
Trade 5 - $893.12
Total - $7278.52 or 6.38%
Let's throw out the first GME trade since it was such an anomaly. That leaves a gain of 2.96% this week ($2195.86/$74000).
Week Summary - I opened 5 short put positions this week. I rolled 3, I closed 1, and 1 will expire. This series of trades will provide a good opportunity to follow along as I try to manage the positions that moved under my strike.
Trade 2 - GME - Opened 2/12 - Threads #258, #320, #321 - Rolled 10 GME Feb 19 44 puts to Feb 26 41 @ .51 credit
GME is obviously a special case, and I have no idea where it will end up. I bought the 44s back and sold next week 41s for a 52 cent credit, giving me a cumulative credit of 2.03. At the moment it's about 2 and a half points below the new strike, so we'll wait for Monday and reassess. It's now within the range it reached after the announcement of Ryan Cohen to the board, and before the phenomenal frenzy, so maybe it will at least slow its rate of descent.
Trade 3 - FUBO - Opened 2/16 - Thread #283 - BTC 10 FUBO Feb 19 43 puts @ .09, Profit = 1.31 or $1302.74. (1302.74/43000) = 3.02% profit.
Trade 4 - PLTR - Opened 2/16 - Threads #285, #312, #313, #314 -
PLTR was searching for a bottom after the earnings disappointment and the end of the share lockdown. I took a chance it wouldn't breach my 28 strike to collect the nearly 4% premium. I missed and it fell hard, briefly below 25, so I was willing to give back a little over half to try and keep up with it. I came down a point with the same expiration. Then I rolled down to 26 for next week and collected .25, giving a cumulative credit of .67, which is still on track to earn over 1% per week, especially since PLTR has already recovered and is 2.5 points above my strike, comfortable going into the weekend.
Trade 5 - WKHS - Opened 2/17 - Thread #311 - Will expire, Profit = .90 or $893.12 (893.12/31000) = 2.88% profit for 3 days of exposure.
Trade 6 - SPWR - Thread #316 - Rolled 10 SPWR Feb 19 38 puts to Feb 26 36 puts @ .85 credit - Cumulative credit = 1.80
This is hovering about 6 cents over the strike, so I'm very comfortable coming down two points for next week and collecting another 2% plus.
Closed Trades Realized Gains:
Trade 1 - $5082.66 (fees reported incorrectly in #258)
Trade 3 - $1302.74
Trade 5 - $893.12
Total - $7278.52 or 6.38%
Let's throw out the first GME trade since it was such an anomaly. That leaves a gain of 2.96% this week ($2195.86/$74000).
I don’t understand your pnl with respect to your statement about trading unlevered.
if you have 74k in equity: you had like 100k+ of notional in this post alone.
@robertSt if you pay attention to what these guys are saying you can really make some improvements here. If your risk adj return is better then you can run higher leverage on your strategy and make more money over time. Especially if you are compounding this will make a big difference in terminal wealth after a long time horizon. Maybe you do have a bit of alpha finding fat vol to sell. Like @destriero says, trading spreads and combos will always be better.
Speaking of PLTR I bought 100 of the PLTR 25/20 put diagonals yesterday. Mar05 / April regular. -0.70 credit and it flipped to debit before the close today. You’re never going to see that kind of return on equity at risk selling naked puts.
And outlier losses are going to gear against you indefinitely; you are trading unlevered so they won’t blow you up but they will seriously hinder your capital growth compared to higher sharpe strategies over time.
Speaking of PLTR I bought 100 of the PLTR 25/20 put diagonals yesterday. Mar05 / April regular. -0.70 credit and it flipped to debit before the close today. You’re never going to see that kind of return on equity at risk selling naked puts.
And outlier losses are going to gear against you indefinitely; you are trading unlevered so they won’t blow you up but they will seriously hinder your capital growth compared to higher sharpe strategies over time.
You can't roll calls forever in the same way you can roll puts. A lot of stocks rally sharply and never correct. With puts, if you are bullish, you can keep rolling until your put expires worthless (your risk is never greater than if you just bought the stock). Also, when stocks drop, implied volatility increases, making premium richer and allowing easier rolling. Implied volatility typically decreases when a stock rallies, making underwater calls more challenging to roll.
That said, when I sell puts, I will often sell a very far OTM call because IBKR gives me a big margin reduction for this. Shorting a 0.10 call can often mean thousands of dollars of margin being freed up.
That said, when I sell puts, I will often sell a very far OTM call because IBKR gives me a big margin reduction for this. Shorting a 0.10 call can often mean thousands of dollars of margin being freed up.
newwurldmn the $74,000 is the amount on those two trades. In the previous calculation I used $114,000.
Thanks Magic. I'm open to learning new things and incorporating new strategies. I can see how the long straddle, for example, could be lucrative around earnings for many of these high IV stocks. I guess the idea is that you have a few enormous returns to overcome the times when it doesn't move enough.
There is a whole lot I don't know. But I do know that abuse is not an effective teaching tool and that expertise is no excuse for not being a civil human being.
There is a whole lot I don't know. But I do know that abuse is not an effective teaching tool and that expertise is no excuse for not being a civil human being.
This is going to be my last post on this strategy. More about that later.
Trades 2 (GME), 4 (PLTR), and 6 (SPWR) are still open.
GME started climbing again this afternoon, I watched it go up 5 points and the value of the short 41s increased, due to volatility. So I bought the 41s back and sold the 44s for an additional credit of .61. This gives a cumulative credit of 2.64 for 2 weeks, a potential gain of over 8% per week.
Haven't done anything with PLTR. If I need to roll down, I will of course.
Rolled SPWR down to 35 from 36 Tuesday morning with the headfake flash crash. It's a point and a half over that at the moment. Total credit on this is now 2.23 for 4 weeks, potentially nearly 4% per week.
I think this is enough to establish the robustness of the strategy. But I am retiring the strategy for the most part. The comment by Magic finally penetrated my brain and I now see that the combo really is better.
I will sell the puts as usual. I will simultaneously buy a lower strike further out in time, spreading at a credit. This establishes a floor, so I no longer have to worry about the stock declining below it. If the short put expires, I still have the long to sell for bonus money. There are multiple ways to make more than the initial credit, while tightly controlling the risk. Perhaps best of all, since the margin requirement is only the difference in strikes minus the credit, I can trade approximately 10 times the number of contracts, really juicing the return on equity. Thanks Magic for this insight.
Happy trading all.
Trades 2 (GME), 4 (PLTR), and 6 (SPWR) are still open.
GME started climbing again this afternoon, I watched it go up 5 points and the value of the short 41s increased, due to volatility. So I bought the 41s back and sold the 44s for an additional credit of .61. This gives a cumulative credit of 2.64 for 2 weeks, a potential gain of over 8% per week.
Haven't done anything with PLTR. If I need to roll down, I will of course.
Rolled SPWR down to 35 from 36 Tuesday morning with the headfake flash crash. It's a point and a half over that at the moment. Total credit on this is now 2.23 for 4 weeks, potentially nearly 4% per week.
I think this is enough to establish the robustness of the strategy. But I am retiring the strategy for the most part. The comment by Magic finally penetrated my brain and I now see that the combo really is better.
I will sell the puts as usual. I will simultaneously buy a lower strike further out in time, spreading at a credit. This establishes a floor, so I no longer have to worry about the stock declining below it. If the short put expires, I still have the long to sell for bonus money. There are multiple ways to make more than the initial credit, while tightly controlling the risk. Perhaps best of all, since the margin requirement is only the difference in strikes minus the credit, I can trade approximately 10 times the number of contracts, really juicing the return on equity. Thanks Magic for this insight.
Happy trading all.
This is going to be my last post on this strategy. More about that later.
Trades 2 (GME), 4 (PLTR), and 6 (SPWR) are still open.
GME started climbing again this afternoon, I watched it go up 5 points and the value of the short 41s increased, due to volatility. So I bought the 41s back and sold the 44s for an additional credit of .61. This gives a cumulative credit of 2.64 for 2 weeks, a potential gain of over 8% per week.
Haven't done anything with PLTR. If I need to roll down, I will of course.
Rolled SPWR down to 35 from 36 Tuesday morning with the headfake flash crash. It's a point and a half over that at the moment. Total credit on this is now 2.23 for 4 weeks, potentially nearly 4% per week.
I think this is enough to establish the robustness of the strategy. But I am retiring the strategy for the most part. The comment by Magic finally penetrated my brain and I now see that the combo really is better.
I will sell the puts as usual. I will simultaneously buy a lower strike further out in time, spreading at a credit. This establishes a floor, so I no longer have to worry about the stock declining below it. If the short put expires, I still have the long to sell for bonus money. There are multiple ways to make more than the initial credit, while tightly controlling the risk. Perhaps best of all, since the margin requirement is only the difference in strikes minus the credit, I can trade approximately 10 times the number of contracts, really juicing the return on equity. Thanks Magic for this insight.
Happy trading all.
@robertSt @Magic
Great to hear Robert!
But surely by putting a floor in with a diagonal, you then have less to play with in terms of rolling??
Thks