Has anyone had any succes selling puts? I have been reading
books by Wade Cook and he claims it to be his favorate strategy.
books by Wade Cook and he claims it to be his favorate strategy.
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Selling Puts???
- Thread starter Little Nickey
- Start date
No, his favorite strategy is bilking the public. Do a search for him on the internet and see the problems people have had with him. I read somewhere that his trading accounts have actually lost money. His income is derived from selling books and seminars.
As far as selling puts, it is a strategy that has to be mastered just like any other to find success. All of those strategies that Mr. Crook teaches are legit, but they are not as simple as he makes them out to be. Personally I have never sold puts, but I wrote covered calls after reading some of his stuff, and it won't work the way he teaches it. You just can't find low priced stocks with high call premiums over and over and not lose money eventually. Most of those stocks are low for a reason. The high returns are there because the risk is also very high. If you could really double your money every two or three months, then someone would already have all the money. I'm sure the same applies to writing puts, only more risk because they are naked.
Be careful when following Wade's stuff.
Kirk
As far as selling puts, it is a strategy that has to be mastered just like any other to find success. All of those strategies that Mr. Crook teaches are legit, but they are not as simple as he makes them out to be. Personally I have never sold puts, but I wrote covered calls after reading some of his stuff, and it won't work the way he teaches it. You just can't find low priced stocks with high call premiums over and over and not lose money eventually. Most of those stocks are low for a reason. The high returns are there because the risk is also very high. If you could really double your money every two or three months, then someone would already have all the money. I'm sure the same applies to writing puts, only more risk because they are naked.
Be careful when following Wade's stuff.
Kirk
first selling a covered call is an artifical short put. Limited up side reward with unlimited risk. The exact same definition as a short put.
Stange how the govt let investors sell covered calls in their retirement account but not sell naked puts.
Talk to any professional options trader and they will say a covered call is the exact same thing. Absolutely huge risk with very limited reward. I'm curious to hear the financials of how Wade Cook did during the crash. I remember arguing with one of his students, he was just selling puts on stocks that he said would never go down. It was CSCO, and the guy started to manage money. That told me we were near a market top. When he said it was impossible for something to happen he set himself up for a huge loss. I'm sure he is no longer trading.
If you want to do options do spreads. Sell credit spreads. Sell an something out of the money and buy something HEAVILY out of the money. This is how floor traders will sell options. There is more liquidity in spreads than in just a regular option.
Yes Wade Cook lost money. He lost over $800,000 during the bull market in 99. (WOW someone lost money in that time) He had a BB stock but I'm not sure it is around. Do yourself a favor that book isn't worth the paper it is printed on use it for to help start a fire in your fireplace.
rtharp
Stange how the govt let investors sell covered calls in their retirement account but not sell naked puts.
Talk to any professional options trader and they will say a covered call is the exact same thing. Absolutely huge risk with very limited reward. I'm curious to hear the financials of how Wade Cook did during the crash. I remember arguing with one of his students, he was just selling puts on stocks that he said would never go down. It was CSCO, and the guy started to manage money. That told me we were near a market top. When he said it was impossible for something to happen he set himself up for a huge loss. I'm sure he is no longer trading.
If you want to do options do spreads. Sell credit spreads. Sell an something out of the money and buy something HEAVILY out of the money. This is how floor traders will sell options. There is more liquidity in spreads than in just a regular option.
Yes Wade Cook lost money. He lost over $800,000 during the bull market in 99. (WOW someone lost money in that time) He had a BB stock but I'm not sure it is around. Do yourself a favor that book isn't worth the paper it is printed on use it for to help start a fire in your fireplace.
rtharp
Thanks for the advice guys. I have had my doubts about Wade and his "stock market miricles". On a positive note, reading three of his books did give me a basic understanding of what an option actually was. I'm a greeny trying to dodge as many bullets as possible while feeding my new found intrest, the market.
Thanks again,
LN
Thanks again,
LN
rtharp,
You stated that selling covered calls poses unlimited risk, which is not true. Selling a covered call means that you have a long stock position underlying, so the maximum loss you can sustain is the price paid for the stock minus the premium received for the calls (not that a stock going to zero isn't a substantial risk). Likewise, selling naked puts poses the same amount of risk as selling covered calls. Now NAKED calls pose unlimited risk in that if assigned you could be short a stock that theoretically could move infinitely to the upside.
Little Nickey,
I often sell naked puts as part of a naked strangle, where I also sell naked calls much higher. I do this on stocks that are rangebound. That way, I usually have a large trading range which a stock can remain in (usually 20 points or more), and if it does, I pocket the whole premiums from both the calls and puts. If a stock breaks out of its trading range and its technicals change, I'll buy back that side of the naked options and take a loss on those options, but still usually have a net break even or profit from keeping the other side of the naked option play.
You stated that selling covered calls poses unlimited risk, which is not true. Selling a covered call means that you have a long stock position underlying, so the maximum loss you can sustain is the price paid for the stock minus the premium received for the calls (not that a stock going to zero isn't a substantial risk). Likewise, selling naked puts poses the same amount of risk as selling covered calls. Now NAKED calls pose unlimited risk in that if assigned you could be short a stock that theoretically could move infinitely to the upside.
Little Nickey,
I often sell naked puts as part of a naked strangle, where I also sell naked calls much higher. I do this on stocks that are rangebound. That way, I usually have a large trading range which a stock can remain in (usually 20 points or more), and if it does, I pocket the whole premiums from both the calls and puts. If a stock breaks out of its trading range and its technicals change, I'll buy back that side of the naked options and take a loss on those options, but still usually have a net break even or profit from keeping the other side of the naked option play.
Originally posted by zboy2854A
rtharp,
You stated that selling covered calls poses unlimited risk, which is not true. Selling a covered call means that you have a long stock position underlying, so the maximum loss you can sustain is the price paid for the stock minus the premium received for the calls (not that a stock going to zero isn't a substantial risk). Likewise, selling naked puts poses the same amount of risk as selling covered calls. Now NAKED calls pose unlimited risk in that if assigned you could be short a stock that theoretically could move infinitely to the upside.
Actually this is true. But I'll slightly reword it. A huge risk and very limited reward.
The risk is of the stock heavily dropping. So to protect your capital you sell the stock. Well guess what you are now short a call (and what does that mean) the other thing is that if a stock drops heavily the volatility heavily increases. A lot of calls don't drop in value much I've even seen them going up as all of the Wade Cook traders have to buy them back. Selling calls while long the stock is known as a synthetic short put on the floor of the CBOE. They have the exact same type of pattern for profit/loss.
The maximum you can recieve for this trade if the price of the call. That is your maximum gain. If the stock price goes
Little Nickey,
I often sell naked puts as part of a naked strangle, where I also sell naked calls much higher. I do this on stocks that are rangebound. That way, I usually have a large trading range which a stock can remain in (usually 20 points or more), and if it does, I pocket the whole premiums from both the calls and puts. If a stock breaks out of its trading range and its technicals change, I'll buy back that side of the naked options and take a loss on those options, but still usually have a net break even or profit from keeping the other side of the naked option play.
His strategy above can work Nickey, there is some risk of the volatily heavily increasing. This market isn't very volatile lately though.
In regards to Wade Cook, my advice is to stay away! I've read all of his books too, and that's actually how I got involved in trading. Let me tell you something. Wade Cook and trading are two completely different things. Wade Cook is not a trader. He is an ex-taxi cab driver who found that he could make a lot more money selling books about an old idea to a general public that doesn't know any better. Wade Cook doesn't have any strategies.
What he teaches about options are true but he doesn't focus nearly enough about the potential risks. Naked puts are exactly the same thing as covered calls only that you don't own the stock. The danger lies in the fact that you can do them with more margin. You usually only need 30% funds available instead of 50% with stock. Wade makes this sound like the neatest thing since sliced bread! It is neat if you know which way the #%*cking stock is going to go! If you don't then you could get caught holding the bag.
I did this last year on AMAT. Made money every month just like he promised. (Of course everyone and their dog was making money on any stock back then). I started getting more agressive. I borrowed money to invest AND margined it. Even worse I started selling in-the money puts. Hey, why not, more premium and the stock will go up anyway right? Well, the inevitable happened. AMAT dropped like a rock and then the margin calls started to come. I got assigned 1,000 shares of a 90 stock. I could only afford to buy 300 shares. Trust me, this is not a postition you want to be in.
If it weren't for daytrading I would be finished. Luckily I stumbled across the right way to make money in the markets. (Cutting your losses immediately, letting your winners ride, and going flat EVERY DAY!!!) Trust me, unless you're Warren Buffet and don't mind waiting 50 years to get rich, this is THE ONLY WAY TO MAKE MONEY IN THE MARKETS. If you want a good book to read go buy "Market Wizards, The New Market Wizards, and Stock Market Wizards". If you wanted to learn to play golf would you listen to the commentator or Tiger Woods? It's the same thing with the markets. Follow the pros. Wade doesn't know crap.
If you insist on doing options I wouldn't do anything but covered calls with no margin. Again, this is a long term strategy. If you had written covered calls on the overall market last year, you'd definetely be better off than the suckers who rode it all the way down but you'd still be in the hole quite a bit. The real traders made money all the way down shorting stocks. Not to mention they slept each night. Trading is not perfect, or without risks, but it's a hell of a lot better than buying a mutual fund or following Wade Cook. My two cents. (Sorry for writing a book).
What he teaches about options are true but he doesn't focus nearly enough about the potential risks. Naked puts are exactly the same thing as covered calls only that you don't own the stock. The danger lies in the fact that you can do them with more margin. You usually only need 30% funds available instead of 50% with stock. Wade makes this sound like the neatest thing since sliced bread! It is neat if you know which way the #%*cking stock is going to go! If you don't then you could get caught holding the bag.
I did this last year on AMAT. Made money every month just like he promised. (Of course everyone and their dog was making money on any stock back then). I started getting more agressive. I borrowed money to invest AND margined it. Even worse I started selling in-the money puts. Hey, why not, more premium and the stock will go up anyway right? Well, the inevitable happened. AMAT dropped like a rock and then the margin calls started to come. I got assigned 1,000 shares of a 90 stock. I could only afford to buy 300 shares. Trust me, this is not a postition you want to be in.
If it weren't for daytrading I would be finished. Luckily I stumbled across the right way to make money in the markets. (Cutting your losses immediately, letting your winners ride, and going flat EVERY DAY!!!) Trust me, unless you're Warren Buffet and don't mind waiting 50 years to get rich, this is THE ONLY WAY TO MAKE MONEY IN THE MARKETS. If you want a good book to read go buy "Market Wizards, The New Market Wizards, and Stock Market Wizards". If you wanted to learn to play golf would you listen to the commentator or Tiger Woods? It's the same thing with the markets. Follow the pros. Wade doesn't know crap.
If you insist on doing options I wouldn't do anything but covered calls with no margin. Again, this is a long term strategy. If you had written covered calls on the overall market last year, you'd definetely be better off than the suckers who rode it all the way down but you'd still be in the hole quite a bit. The real traders made money all the way down shorting stocks. Not to mention they slept each night. Trading is not perfect, or without risks, but it's a hell of a lot better than buying a mutual fund or following Wade Cook. My two cents. (Sorry for writing a book).
There is another, safer way to work with covered calls, which still provides similar upside potential but limits your worst case scenario to break even or a small loss. It is called an options collar, and it works by selling calls at a higher strike than where you purchased the underlying stock. You then take the premiums you received from the calls and use it to buy puts below your buy price. So for instance, if you bought XYZZ at 90, let's say you sold the 95 calls and took the premiums and bought the 85 puts. Now, if XYZZ goes to 95 or higher you'll be assigned and sell your stock for a 5 point profit. If the stock tanks, the value of your puts will increase accordingly, keeping you at break even on the stock or with a small loss, certainly one that is easy to recover from.
Obviously the upside potential is limited, but so is the downside, which makes this an attractive play for those who wish to be conservative and safe while still allowing for decent and steady potential gains.
Obviously the upside potential is limited, but so is the downside, which makes this an attractive play for those who wish to be conservative and safe while still allowing for decent and steady potential gains.
For some reason lost in the dim past I began trading options about 12 years ago. Which means absolutely nothing except that I've be lucky along the way. I usually trade long calls, long puts , or spreads. Nothing complicated for me!
If I were just starting out I would consider the following as I've written here before.
Consider trading the underlying equity while holding protection in the form of options. Example; lets say you trade csco every day on a regular basis. You want to trade in 1000 share blocks. Purchase enough puts of the correct strike to remain delta neutral. As long as you own the puts you can trade in and out of csco as much as you like with reduced risk. Of course you have to be right about direction still but it's much safer. Yes you have to cover the costs of the puts but it's do-able.
If you prefer the short side of the market, buy calls and short the underlying. You MUST still maintain a delta neutral position so some adjustments may be necessary.
Wade Cook; The only stock market miracle is that he is still a free man.
Good luck
If I were just starting out I would consider the following as I've written here before.
Consider trading the underlying equity while holding protection in the form of options. Example; lets say you trade csco every day on a regular basis. You want to trade in 1000 share blocks. Purchase enough puts of the correct strike to remain delta neutral. As long as you own the puts you can trade in and out of csco as much as you like with reduced risk. Of course you have to be right about direction still but it's much safer. Yes you have to cover the costs of the puts but it's do-able.
If you prefer the short side of the market, buy calls and short the underlying. You MUST still maintain a delta neutral position so some adjustments may be necessary.
Wade Cook; The only stock market miracle is that he is still a free man.
Good luck
Originally posted by zboy2854A
There is another, safer way to work with covered calls, which still provides similar upside potential but limits your worst case scenario to break even or a small loss. It is called an options collar, and it works by selling calls at a higher strike than where you purchased the underlying stock. You then take the premiums you received from the calls and use it to buy puts below your buy price. So for instance, if you bought XYZZ at 90, let's say you sold the 95 calls and took the premiums and bought the 85 puts. Now, if XYZZ goes to 95 or higher you'll be assigned and sell your stock for a 5 point profit. If the stock tanks, the value of your puts will increase accordingly, keeping you at break even on the stock or with a small loss, certainly one that is easy to recover from.
zboy, rtharp and anyone else for comments
Let us assume XYZ trades mainly between 55 and 60 and is currently at 55. We sell the 55 puts for a 5 premium and immediately buy 65 calls for a 2 premium. I believe this is called a synthetic long position. Subsequently XYZ trades up to 60. Immediately we sell 60 calls for a 5 premium and buy 50 puts for a 2 premium. I believe this is called a synthetic short position. I have run the numbers on this and only see a win-win position with this strategy. We have recieved 6 points premiums net and only need to wait until expiration to see how much we keep. If XYZ ends trading at 50 or below we keep 1 point. If XYZ ends trading at 65 or above we keep 1 point. Any price between 50 and 65 we may keep anywhere from 2 points to 6 points; the 55-60 range being the maximum 6 points. You have only to let these positions expire and need do nothing else. As a daytrader you are still in a technically flat position after every market close and need not be concerned of overnight news one way or the other.
I would appreciate any and all critiques and comments.
Regards