Selling puts on strong stocks
- Thread starter Miked0801
- Start date
hi Mike - i have recently run some numbers on historical volatilities for the stocks in the Russell 1000 - even if you take the relatively lower volatility environment from 2003 to present, the "fat tails" are still significant, from memory my numbers showed the frequency of 3+ standard deviation events to be on average 3 times greater than under the standard normal distribution (2+ std dev. higher also) - the biggest option sellers, e.g. market makers, are compensated for this by the typically higher implied volatility than historical volatility, in addition, they must be highly diversified among the stocks so that if they take a hit or several, this still will be a small portion of their portfolio, also i presume they use overall portfolio insurance against market-wide events - in the end, i couldn't justify picking a relatively small number of stocks and selling options on them, from my numbers, without a high level of diversification, i'd end up taking more hits than necessary to make profits... - i wanted to see what your take on this is and whether you have looked at the historical data - in either case, base of luck with your trading.
Thanks for the well wishing.
My take on volatility vs risk: My trading account for now is a small part of my overall strategy. I am still very much a noob when it comes to trading (1.5 years or so) and started this journal to get input from others as well to track my progress and decisions as time goes on. With only 15K or so to play with, I cannot diversify across many strong stocks and not have my gains destroyed by commisions and margin interest. As such, I am evaluating a list of stocks that I've been watching for a few years and choosing the best of that list in terms of techincals, fundimentals, option price pegging, and any other bit of news/advantage I can get. If I stay careful and don't get too greedy, I hope to get this account back up to 20K by summer. At that point if all goes well, I will throw another zero at this account and start really trading it.
So, can I protect myself from the big deviation swings you are discribing? Not completely. But I can be vigilent and carefully choose my battles - learn when to hedge and/or run like I did today on the runup back to 40.20 so far.
I have learned a bit from past explosions. This account started at 20K, went up to 30K in 2 hours on a lucky call play on Merck, then has since dropped to below 13K on roulette wheel plays. I've used that experience as well as my continued education to get it back to around 16K as of today. I'm still trying to break myself of the "It's gotta go up, buy a OTM call!!!" mentality and this journal will help.
Slower and steadier. If I can remember that, I just may finish the race.
My take on volatility vs risk: My trading account for now is a small part of my overall strategy. I am still very much a noob when it comes to trading (1.5 years or so) and started this journal to get input from others as well to track my progress and decisions as time goes on. With only 15K or so to play with, I cannot diversify across many strong stocks and not have my gains destroyed by commisions and margin interest. As such, I am evaluating a list of stocks that I've been watching for a few years and choosing the best of that list in terms of techincals, fundimentals, option price pegging, and any other bit of news/advantage I can get. If I stay careful and don't get too greedy, I hope to get this account back up to 20K by summer. At that point if all goes well, I will throw another zero at this account and start really trading it.
So, can I protect myself from the big deviation swings you are discribing? Not completely. But I can be vigilent and carefully choose my battles - learn when to hedge and/or run like I did today on the runup back to 40.20 so far.
I have learned a bit from past explosions. This account started at 20K, went up to 30K in 2 hours on a lucky call play on Merck, then has since dropped to below 13K on roulette wheel plays. I've used that experience as well as my continued education to get it back to around 16K as of today. I'm still trying to break myself of the "It's gotta go up, buy a OTM call!!!" mentality and this journal will help.
Slower and steadier. If I can remember that, I just may finish the race.
Greed is starting to kick in here. Greed is good right? Lol
AMD is now approaching the top of its latest channel. It broke through to the 52-week high this morning, then got freaked back down by Intel and profit takers. I'm watching closely today for a chance to roll my puts up to 40s depending on the strength I see today.
Right now, Uncle theta has delivered a nice profit for this month - even with the hedge so it may not be totally necessary to roll up. Still, another couple % would be nice if AMD continues to show such momentum upwards.
I am fighting myself real hard right now. I keep thinking I could have done so much better with the 10% price up-swing than what I did. Then I remind myself that my take did not require much risk and therefore I wasn't pressured too badly into a premature sell. Halfway betweed Fear and Greed is Freed. I will continue to maintain the balance and keep a clear head so that my gold does not slip through my fingers into some journal reader's purse
AMD is now approaching the top of its latest channel. It broke through to the 52-week high this morning, then got freaked back down by Intel and profit takers. I'm watching closely today for a chance to roll my puts up to 40s depending on the strength I see today.
Right now, Uncle theta has delivered a nice profit for this month - even with the hedge so it may not be totally necessary to roll up. Still, another couple % would be nice if AMD continues to show such momentum upwards.
I am fighting myself real hard right now. I keep thinking I could have done so much better with the 10% price up-swing than what I did. Then I remind myself that my take did not require much risk and therefore I wasn't pressured too badly into a premature sell. Halfway betweed Fear and Greed is Freed. I will continue to maintain the balance and keep a clear head so that my gold does not slip through my fingers into some journal reader's purse
wrote some MAR 45 naked call last week, got panic and covered them for small profit this morning and kind of regretting.
On a side note, I really do think semiconductor industry has peaked a few years ago and it won't be too long till it becomes what car manufactures (gm, f) experiencing now.
On a side note, I really do think semiconductor industry has peaked a few years ago and it won't be too long till it becomes what car manufactures (gm, f) experiencing now.
Could be - but right now the techincals still bare out my strategy here.
BTW, I am also watching the following stocks for a March scalp or perhaps an early April entry:
WM - approaching the 200 again. Likes to bounce off it, but only 1% premium on the Apr 40s right now.
TXN - missed the boat here
VLO - oil is starting to creep up again and it just breached the 50 day. April 50s look like a decent play at 80.
MRK - keeps riding the 20 day. Apr 32.50s look ok, but this is a stock I would buy a spread in. Everytime Vioxx is mentioned, it thrashes all over the place.
PG - in a nice uptrend, apr 55 (synth puts) look ok, but premium is kinda low.
PFE - riding the 20 nicely. Showing some strength above the 200. Apr 25s or a 25/22.5 spread looking pretty good.
Stay tuned
BTW, I am also watching the following stocks for a March scalp or perhaps an early April entry:
WM - approaching the 200 again. Likes to bounce off it, but only 1% premium on the Apr 40s right now.
TXN - missed the boat here
VLO - oil is starting to creep up again and it just breached the 50 day. April 50s look like a decent play at 80.
MRK - keeps riding the 20 day. Apr 32.50s look ok, but this is a stock I would buy a spread in. Everytime Vioxx is mentioned, it thrashes all over the place.
PG - in a nice uptrend, apr 55 (synth puts) look ok, but premium is kinda low.
PFE - riding the 20 nicely. Showing some strength above the 200. Apr 25s or a 25/22.5 spread looking pretty good.
Stay tuned
Motion sickness
Remember that greed post? Remember how I was going to watch for a 40 entry? This is why we wait and watch. My position is secure and my hedge actually gained in value a bit today to counter the increase of premium on the front. Patience and care ahead for Monday - Hector is supposed to give a pep-talk. Hopefully the market likes what it hears.
Remember that greed post? Remember how I was going to watch for a 40 entry? This is why we wait and watch. My position is secure and my hedge actually gained in value a bit today to counter the increase of premium on the front. Patience and care ahead for Monday - Hector is supposed to give a pep-talk. Hopefully the market likes what it hears.