Selling puts

[lindq]

Quote from USAtrader:

There are strategies using naked puts that are great, and believe it or not, low risk with decent premium...

Goodnight.

Show us one, presenting a clear picture of risk and reward.

SumJurks last post had it right on the money. In order to "potentially" net any premium worth the effort, you must either size up or deal with higher dollar instruments, thereby putting yourself at great risk when the eventual hit comes. But unless you actually trade short puts, you won't appreciate that fact until it happens to you.

Even a very successful swing trader doing pullbacks - which are the most efficient setups for short puts - does maybe 75%-80% short term win/loss, if he is lucky. That means 20%-25% of your short puts are going to result in losses, and it only takes a couple of those to completely erase a year's worth of small premie gains. If you are anything less than a great trader, then you are going to get cleaned very quickly. And if you ARE a great trader, you shouldn't be selling puts at all, you should be trading the underlying, because there is absolutely NO reason for you to be screwing around with a strategy that offers very limited reward for taking on the FULL risk of the underlying.

So again, show us a naked put strategy that is "low risk with decent premium".

Let's see it.

 

[NasdaqTrader]

Well if you don't want to be cleaned out,you can always write puts on various different stocks to spread the risk around.You also have to remember that not everyone can daytrade or even find time to swing trade stocks;so for all the investor types out there,it seems like writing puts every month or two can be a better option than buying the stock outright,since one can make money from time decay and from the stock not moving at all,or at least not going below the strike price;then you can adjust your strike prices that you write each time the option expires.

 

[TempusFugit]

Quote from lindq:

Show us one, presenting a clear picture of risk and reward.

SumJurks last post had it right on the money. In order to "potentially" net any premium worth the effort, you must either size up or deal with higher dollar instruments, thereby putting yourself at great risk when the eventual hit comes. But unless you actually trade short puts, you won't appreciate that fact until it happens to you.

Even a very successful swing trader doing pullbacks - which are the most efficient setups for short puts - does maybe 75%-80% short term win/loss, if he is lucky. That means 20%-25% of your short puts are going to result in losses, and it only takes a couple of those to completely erase a year's worth of small premie gains. If you are anything less than a great trader, then you are going to get cleaned very quickly. And if you ARE a great trader, you shouldn't be selling puts at all, you should be trading the underlying, because there is absolutely NO reason for you to be screwing around with a strategy that offers very limited reward for taking on the FULL risk of the underlying.

So again, show us a naked put strategy that is "low risk with decent premium".

Let's see it.

Check out Max Ansbacher:

http://www.usafutures.com/aimartofoptions.pdf

 

[SumJurk]

Quote from TempusFugit:

Check out Max Ansbacher:

http://www.usafutures.com/aimartofoptions.pdf

Thanks...nice article. Here's a quote from the article.

"He never trades individual equity options. He considers there
jump potential too dangerous"

Great advice from a 25 year veteran...

 

[TempusFugit]

Quote from SumJurk:

Thanks...nice article. Here's a quote from the article.

"He never trades individual equity options. He considers there
jump potential too dangerous"

Great advice from a 25 year veteran...

Not only do you get company-specific risk with individual equity options, you also get the short-term capital gains tax rate (in the USA).

In contrast, index options, e.g., SPX or MNX options, qualify for so-called section 1256 treatment which means that 60% of your net gets the long-term cap gains tax rate (15%) and 40% gets the short-term rate (35% for the top bracket). The blended rate max is thus 23%.

 

[NasdaqTrader]

Here is a link to his site that i found...http://www.novek.com

 

[AAAintheBeltway]

Max Ansbacher has apparently put together a great record using a strategy of selling OTM index options. Many others have tried to duplicate his success and failed, some spectacularly. Suffice it to say that it is not as simple as it looks, and risk control is paramount.

Selling naked puts on equities carries one huge risk that was identified by another poster. The premiums for OTM's are low, so it is tempting to do size, particularly when you're only a week or two out. Do that enough times and they will carry you out one day feet first.

It's not my strategy, but I understand the argument of selling naked puts on "stocks you wouldn't mind owning." The key though is exposure. Sell only enough that you can own them, even if they gap down 50% or whatever.

Anyone contemplating a strategy of naked gamma should read the options risk disclosure booklet carefully. Folks, they don't put that stuff in there just to scare you. If you're going to sell premium, why not just pay the extra $.10 and turn it into a vertical? "Staying spread is staying alive."

 

[ktm]

I use a similar strategy to Ansbacher. There are many nuances and Max accurately points out that risk control is the key.

There is a lot of work involved.

 

[NasdaqTrader]

Anyone know if stock and cash index options also get the 60/40 tax treatment or is it just for futures and options on futures?

 

[omcate]

Quote from NasdaqTrader:

Anyone know if stock and cash index options also get the 60/40 tax treatment or is it just for futures and options on futures?

Nonequity options are options that are not directly or indirectly related to a specific equity (stock). Most if not all publicly traded index options are nonequity options and get the 1256 tax treatment.