Selling SPX Put Options

[The Rookie]

Selling spx put options for income. Is there a reason for waiting for the expiration date?
Why not buy the put back before the expiration and pocket the credit? Pros and cons of this method?

 

[stepandfetchit]

It depends on precisely what you wish to accomplish. Closing the short PUT prior to expiration is probably the most common way to trade them. Closing early frees capital.

 

[SanMiguel]

It has to be worth less than you sold it for to make anything.
I usually buy back if I am in profit by 50% of the premium I received. Then I sell another

 

[JSOP]

Selling spx put options for income. Is there a reason for waiting for the expiration date?
Why not buy the put back before the expiration and pocket the credit? Pros and cons of this method?

Pro: You avoid possible losses stemming from sudden unfavourable changes in price at the last minute close to expiration

Con: You don't earn the full premium by not holding it until expiration upon which the price of the option becomes zero

I usually hold it out until expiration to earn the full premium especially if I know the market well. Why earning just some of the money when you can pocket all of the money if you just hold out for 1 or 2 more days?

 

[The Rookie]

If the put is green you would earn the full premium plus more, right?

 

[AbbotAle]

It has to be worth less than you sold it for to make anything.
I usually buy back if I am in profit by 50% of the premium I received. Then I sell another

Yep, many ways to skin the cat.

Some always cover at 10%, ie if sold for 100, cover at 10.

 

[AbbotAle]

Selling Puts is actually a phenomenal strategy to use, at the right time of course.

Every 5-10 years the market gets so battered, and put premiums get so high, it's almost a given to make money. The trick however is, you must WANT that stock, and be fully prepared to pay for it, if the market continues to dump. So it's really a long term stock accumulation strategy.

Buffet knows his options, and you know he knows risk as well, so I wouldn't be surprised if he's a seller of billions of $ worth of puts every now and then.

 

[newwurldmn]

Selling Puts is actually a phenomenal strategy to use, at the right time of course.

Every 5-10 years the market gets so battered, and put premiums get so high, it's almost a given to make money. The trick however is, you must WANT that stock, and be fully prepared to pay for it, if the market continues to dump. So it's really a long term stock accumulation strategy.

Buffet knows his options, and you know he knows risk as well, so I wouldn't be surprised if he's a seller of billions of $ worth of puts every now and then.

buffet isn’t save for a big trade in 2005 which was likely due to a regulation change that caused those options to be very expensive. And he couldn’t hold onto the position in 2008.

 

[VolSkewTrader]

Put owners/buyers going into March's crash made generational money. Some prominent put and premium sellers lost 10+ years of earnings in 1 week in March. Don't be a lazy put seller.

 

[jys78]

buffet isn’t save for a big trade in 2005 which was likely due to a regulation change that caused those options to be very expensive. And he couldn’t hold onto the position in 2008.

Is that true? I thought he maintained the positions (which of course went on to expire worthless ie 100% profitable for him).