Selling slightly OTM-Puts-Good Idea?
- Thread starter antares66
- Start date
This statement alone, says you should not sell puts.
Sudden drops in the stock pump up volatility and allow no reasonable escape. A very serious drop or trading halt means no market. You stare at an empty option bid ask screen as no market makers will quote or act on your frantic offers to close your options, as the stock you are not interested in plummets. Many have lost months and even years of steady profits in a single bad day or week ( Do some research ).
I wish you good luck in your trading. Remember premium is not free money , just as a baited hook is not free food for fish, eventually you will be on the hook for stocks you do not care about.
There is a reason why a slightly OTM put is priced with such a high premium. Unless you know the reason and can accept the reason, don't think it's a good idea to sell naked puts just to enjoy the premium. That premium will be taken away from you real soon and you will end up with a loss lot bigger than that premium in no time. If you want to see it for yourself, test it out with a small position like 1 contract.
Your comments were very helpful for me and sharpens my view on this topic. Does anyone of you trade simple long calls or puts? Or do you prefer trading without leverage? I mean buying a simple call on apple this week would have been a good idea, but I missed it.
As an European if have the opportunity to trade cfds and consider to use them for etfs since I cannot trade the etf underlining because of European regulatories.
As an European if have the opportunity to trade cfds and consider to use them for etfs since I cannot trade the etf underlining because of European regulatories.
Does any speculator “prefer” to trade without leverage? Doubt it.
I think what you’re trying to convey is: Or do you prefer trading non-convex (gamma) payouts with zero-theta (delta-one)?
I trade outright calls/puts usually for lotto picks, occasionally to hedge long stock or other optionality spreads (usually butterflies). If my delta inverts I’ll buy a call/put to offset/hedge the inverted wing. It depends.
As far as the lottos, they’re not really lottos but definitely are far fetched. For example I’m loading up on May NKLA $20 calls. Let’s get this fooking money!
watch your fooking mout, mate!
When an OTM put pays that much of a premium, it usually means the underlying stock is highly volatile. You will probably get assigned. So be prepared to own the stock going forward, if you must do the trade. Otherwise, don't do it.
It's not that much that it's "unlimited" as how much it eats into your net worth, when you're operating with considerable amounts of capital.
If your trading capital is $100 bucks then it don't matter. You can lose 100% of your "capital", who cares?
But your lifetime savings are like $200,000 and you place them all on selling naked puts and the stock value drops 50% overnight. You just lost HALF OF YOUR LIFE SAVINGS in a single blow.
That's where "unlimited" comes from.