Sorry for not replying sooner, I was ordering the system and putting all possessions for sale to leverage 1000% into this system.
Strategy: Selling Put Options: The Best Income Method?
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Sorry for not replying sooner, I was ordering the system and putting all possessions for sale to leverage 1000% into this system.
No, there is a misunderstanding by you.
The strategy can make that high profits, but there is no guarantee for it.
But as said, one can pay a possible loss from the credit and quit the position early.
By that, the own account would not make any loss.
(but that I already had explained, just re-read it)
I'm not new to options trading. I'm just new to selling options, as up until now I have traded only long puts and long calls.
Wrong assumption by you...
That has been answered above.
The strategy can indeed make double digit profits, but that can not be guaranteed.
What can be guaranteed is that the own account doesn't get hurt: if constantly monitored
and the position closed early if the credit minus costs have been eaten up by the loss.
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You said that it can be a risk free strategy and you are showing examples with double digit returns. When done right there is a risk free return. YOU said it, not me so do not back out of your own words. You, a so called non-newbie in options are claiming that you when done right, selling puts can be a risk free strategy to make high yield returns.
Prove that it is risk free then.
We are still discussing/testing/evaluation the strategy. I'm not ripe yet for options selling.
Here are seemingly enough experts around, just contact one of them.
But I guess you don't need anybody, just asking a rhetoric question, right? ;-)
You should read correctly, see the other posting for the answers.
Translation by you....is you can trade short puts but YOUR OWN ACCOUNT DOES NOT GET HURT.... YES! I trade short puts all the time and other people's accounts lose money but mine never losses a penny. Thus risk free!
Such stocks wouldn't be recommended for this strategy.
Nobody is interested in owning such volatile stocks.
But for this strategy you must be willing to own the stock.
Do you understand the difference? Otherwise just re-read the article.
So it should be, congrats!
Yes exactly! That's what I mean by risk-free: own account is protected and one still has a chance of making a big profit. Isn't that a wonderful idea?
Of course this can't work with Buy&Hold, one rather would need realtime monitoring of the position. But this is of course possible nowadays.
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I further analysed the strategy:
The main trick behind the high yield is the use of 5x margin = 5x leverage.
The 22% are the result of this 5x leverage, ie. without the use of margin the strategy
makes only 22/5=4.4%. That's normal and expected for such a tight strike.
The weak point in the strategy is that he uses a tight strike (spot=34.80, strike=34), which is IMO not optimal,
as it allows the stock to fall only 2.3%, and that's of course too small a stop as it can be hit easily.
A better approach would be IMO to use a stop of 10%. But then of course the profit can't be that high.
But I think with another little trick one can increase it again... ;-)
...to be continued
The main trick behind the high yield is the use of 5x margin = 5x leverage.
The 22% are the result of this 5x leverage, ie. without the use of margin the strategy
makes only 22/5=4.4%. That's normal and expected for such a tight strike.
The weak point in the strategy is that he uses a tight strike (spot=34.80, strike=34), which is IMO not optimal,
as it allows the stock to fall only 2.3%, and that's of course too small a stop as it can be hit easily.
A better approach would be IMO to use a stop of 10%. But then of course the profit can't be that high.
But I think with another little trick one can increase it again... ;-)
...to be continued
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rmorse
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Not sure what you are referring to when you say 5x margin when the topic is options. When we refer to leverage and equity positions it is simple math based on market value. With options, not so simple. In a PM accounts, the OCC shocks a portfolio based on their VOL skew and the max loss from breaking down the shocks into 5 levels up and 5 levels down, is your requirement. However, Clearing firms use their own calculation based on risk that is more restrictive and rarely used the OCC to calculate that. They use their own shocks and vol curve.