Should be as risky as holding the stock on margin.
Strategy: Selling Put Options: The Best Income Method?
- Thread starter botpro
- Start date
That's crazy (I assume you agree and are saying this tongue-in-cheek). But for those who take your statement seriously: this is a technique to be used with a small fraction of one's portfolio.
After thinking some more about this strategy, I think one can add it into a system like this:
sell the put --> you get the whole credit immediately.
now, let the system work:
set your TSL or SL to a value that is <= the received credit minus cost of the option.
If the stop gets hit, close the position.
Voila! We now have a very good risk management system because we never can lose our own money!... ;-)
In German I would shout "das ist geil, man!"
Ie. that's cool, man!
Any thoughts?
sell the put --> you get the whole credit immediately.
now, let the system work:
set your TSL or SL to a value that is <= the received credit minus cost of the option.
If the stop gets hit, close the position.
Voila! We now have a very good risk management system because we never can lose our own money!... ;-)
In German I would shout "das ist geil, man!"
Ie. that's cool, man! Any thoughts?
Last edited:
rmorse
Sponsor
That holds true for every strategy. The problems now is that the clearing firms no longer see the risk reward from offering pure PM margin (or for an FCM, pure SPAN margin) to naked option sellers. They see a limited value in the commission dollars from this activity with the risk of a large loss from hundreds of accounts all at the same time. Keep in mind that clearing firms make their money from commissions, long stock debit balances and short stock fees. They prefer to make their money from short stock fees where the account is hedged, because they make money with little risk.
In 2013, the OCC made changes to their Financial Guarantee program. It basically penalized those members that had higher margin balances which is typical from naked option sellers. That was when many clearing brokers started to add risk rules to reduce naked option selling. Then Aug 24th came around. During that flash crash or whatever you choose to call it, for a few days the clearing members of the OCC were asked to place enormous deposits that the OCC to cover market risk. The clearing firms were disturbed to have to put up what amounted to a multiple of some of their firm’s capital, borrowed from banks for a few days.
Because of the OCC changes in 2013 and market activity in Aug 2015, rules will only get more restrictive in the future for naked option sellers.
Bob
After thinking some more about this strategy, I think one can add it into a system like this:
sell the put --> you get the whole credit immediately.
now, let the system work:
set your TSL or SL to a value that is <= the received credit minus cost of the option.
If the stop gets hit, close the position.
Voila! We now have a very good risk management system because we never can lose our own money!... ;-)
In German I would shout "das ist geil, man!"
Any thoughts?
So you invented a method where you never lose money selling puts naked... Like when the stock drops sharply and vols spike you simply get out with no loss at all.... genius!
After thinking some more about this strategy, I think one can add it into a system like this:
sell the put --> you get the whole credit immediately.
now, let the system work:
set your TSL or SL to a value that is <= the received credit minus cost of the option.
If the stop gets hit, close the position.
Voila! We now have a very good risk management system because we never can lose our own money!... ;-)
In German I would shout "das ist geil, man!"
Any thoughts?
These things will blow right through your stops regularly. On a day like October 1987, you'll lose even more than the margin. You must limit your losses. Don't be a pig. Give up 10% of your profits to buy a DITM wing.
I'm still learning/experimenting/evaluating the possibilities of options writing;
but it seems that said strategy is a legitimate long-term strategy, tho I prefer short-term trading.
The reason for posting it here was of course to discuss it and seek the opinions of others on that strategy.
It's a sound strategy, freely available on the net since end of 2014, without the need of any paid subscription or membership.
Last edited: