Selling Premiums On Stocks

Well I had a quick look at the dow (1900 – 2001) for 27854 daily data the output is

Vol 17.2%
Skew -1.1
Kurt 39.3

On top of that the index trends slightly so someone can expect a few surprises.

Unfortunately I don’t have right now reliable multi year data for dow jones stocks for comparison as I don't invest in US stocks.
 
Quote from optioncoach:

There are many covered call mutual funds and ETFs out there....
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The past few years has not been good for CC's. Good stocks getting called away all the time.

spy
 
Why not?

If the markets have been moving upwards, then CC sellers are making premium plus capital appreciation and they can keep re-entering long stock positions. Sideways or slightly bullish market is perfect for CC writers. Those funds let the stocks get called away and enter into new long/short call positions, pocketing 1 - 3% a month. Of course some losses are mixed in along the way.

Not for me but those who do CC strategies probably have been happy the past based on that chart.

Quote from forex-forex:

The past few years has not been good for CC's.

spy
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Quote from tyrant:

Yes, but I was thinking why don't they expand it to include selling puts on stocks that they are willing to hold if exercised against, and in the meantime, collect premiums. As for the stocks that they end up holding, they can then sell calls against them, at least on those that they are not particularly bullish about. Is this kind of strategy widely used? Or, is it workable?
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If one is prepared to hold stocks if exercised against, then arguments against stock options like less liquidity becomes less relevant, right? And as mentioned, if subsequent to being assigned the stock, one starts to write calls on it, would this kind of strategy likely to be quite profitable?
 
Quote from Profitaker:

Tyrant

Both. I have a “core” of half a dozen stocks which I’ve come to know, and trade very regularly. But I’m also constantly looking for opportunities in other stocks and will trade anything if the price / IV is right.

Optionspoet



That probably depends on the country from which you trade. No tax advantage here (London). [/B]
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Do you trade stock options in US? If not, why not?

When you say that you trade regularly on half a dozen stocks that you concentrate on, do you mean buying/selling as in swing type of trading, or is it more towards selling premiums with defensive tactics. Do you regularly hold on to stocks if exercised against of do you mostly deal with options only?
 
Quote from gbos:

I think what Profitaker says is that a stock moving in 3% steps can gap for example 40% but an index moving in 0.5% steps can also gap significantly (say 15%).

The risk in the index is that the usual 0.5% steps can be deceiving and lead to the opening of a relative large position that will be hurt more with the Black Swan.
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Makes sense to a novice like me.
 
Quote from optioncoach:

Why not?

If the markets have been moving upwards, then CC sellers are making premium plus capital appreciation and they can keep re-entering long stock positions. Sideways or slightly bullish market is perfect for CC writers. Those funds let the stocks get called away and enter into new long/short call positions, pocketing 1 - 3% a month. Of course some losses are mixed in along the way.

Not for me but those who do CC strategies probably have been happy the past based on that chart.
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They would be re-entering their positions at a higher cost, even taking into account premiums received on lots of those CC's. No way would they be making 3% per month on CC's, and I doubt they could even squeeze out 1% per month.
 
Quote from wayneL:

I'm with MTE on this one for now.

There is more fear of a black swan in idicies, especially on the downside hence the vol smirk... also index options tend to be chronically overvalued.


That's just my obsevation.
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Is it true to say that index options are chronically overvalued? Even at 10 % I.V?

Compare it tot the I.V of stocks regularly at 30-60% , aren't stock options better candidates for selling premiums compared to index options? I understand that their actual volatility is higher in individual stock due to lack of negative correlation as in indices, but one should be able to sell less contracts to reap the same reward and thus minimising the risk of black swan, which will hurt the premium sellers of index options more due to selling more contracts? Makes sense?
 
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