Selling puts to enter?

earth_imperator · Aug 8, 2022

2rosy said:
I sell puts to enter long investments. Usually, slightly otm soon to expire

Can you tell a little bit about your experience? Why did you chose that strategy over other strategies for example with a longer DTE?

destriero · Aug 8, 2022

FreeGoldRush said:
You may know this but since you said this is new to you it's important to state.

1) You can lose more than your original investment by selling puts.
2) Trading options generally exposes you to very high bid/ask spreads and that will cost you.

If you want to go long the stock it is FAR more efficient to just buy the stock. You would need some other reason than simply favoring the stock before an options trade on it makes sense.

Not if they are cash secured. Sure, there is some unicorn scenario where vol goes from 10 to 400, but as a rule it's lower risk if cash secured.

Some vol-series are tighter (notionally) than the underlying shares (AAPL pre split).

FreeGoldRush · Aug 8, 2022

destriero said:
Not if they are cash secured. Sure, there is some unicorn scenario where vol goes from 10 to 400, but as a rule it's lower risk if cash secured.

Some vol-series are tighter (notionally) than the underlying shares (AAPL pre split).

Correct. I was being overly brief. Thank you.

earth_imperator · Aug 8, 2022

FreeGoldRush said:
To do this correctly you need to know how much cash your broker requires you to have on hand to sell the put. This varies a lot depending on the put you are selling and can easily be many multiples of the amount you hope to gain on the trade. So the cash required to enter the trade is actually your original investment even though all of it will just sit in your account and be unusable. From that you can calculate ROI for different outcomes.

FYI: in a standard cash account the cash requirement for short-selling a Put is Strike - Premium.
It's also called "CashSecured Put".

earth_imperator · Aug 8, 2022

In a CashAcct the ROI% calculation for 1 ShortPut contract is as follows:

Code:

  Investment = (Strike - InitialPremium) * Multiplier

  Credit     = InitialPremium * Multiplier

  ROI%       = Credit / Investment * 100

Multplier is the "lot size" for 1 contract, ie. usually 100.
In this context (ie. short selling), the InitialPremium can also be called "Credit".
The whole thing is usually called "CashSecured Put".

destriero · Aug 9, 2022

earth_imperator said:
In a CashAcct the ROI% calculation for 1 ShortPut contract is as follows:

Code:

Investment = (Strike - InitialPremium) * Multiplier Credit = InitialPremium * Multiplier ROI% = Credit / Investment * 100

Multplier is the "lot size" for 1 contract, ie. usually 100.
In this context (ie. short selling), the InitialPremium can also be called "Credit".
The whole thing is usually called "CashSecured Put".

@thecoder is back and apparently on his best behavior.

Overnight · Aug 9, 2022

destriero said:
@thecoder is back and apparently on his best behavior.

God damnit, really? I thought we had seen the last of "the Fairput™" How on earth do you guys sniff out these returning posters? I am bad at that.

ph1l · Aug 9, 2022

Overnight said:
God damnit, really? I thought we had seen the last of "the Fairput™" How on earth do you guys sniff out these returning posters? I am bad at that.

Here is another one for you. margin_gamble is

fibo_trader

Overnight · Aug 9, 2022

ph1l said:
Here is another one for you. margin_gamble is

fibo_trader

How do you KNOW this? How how?!? GAH! I mean, the best I can do is sniff out posters who are obviously previous nicks, like monobrowtrading. But I have no idea who they were in the past.

ph1l · Aug 9, 2022

Overnight said:
How do you KNOW this? How how?!? GAH! I mean, the best I can do is sniff out posters who are obviously previous nicks, like monobrowtrading. But I have no idea who they were in the past.

They have the same writing style. For example,
https://www.elitetrader.com/et/thre...antediluvian-times.331477/page-2#post-4837929

Hahahahaha, THEY ALL go on and on and on about SPX because of the 500 stocks. Hahahahaha. BEAR couldn't care lessabout SPX, his heart has always been focussed on the Mighty Dow Jones with HISTORY since 1720 when you splice British Prices.

https://www.elitetrader.com/et/thre...g-the-bear-be-dead.368746/page-2#post-5645927

Best of luck to all ET traders. May everyone flourish and prosper in this ongoing BEAR market, epic at 2 degrees of Trend, the greatest BEAR in all of American and British History all the way back to years 1720 and gong back evdn more into antediluvian times aka biblical times.