Do you realize that if you sell option & buy it back immediately you are already losing money?
Strategy: Selling Put Options: The Best Income Method?
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Yes, the spread effect between Bid and Ask...
But let's be realistic, in this case that won't happen because of the calculated-in cushion (stop-level) into the strategy, agreed?
Good thing math test not required to trade options.... but it should be...
Ah, ok, I see it should be $49...
Ok, a typo, should be $49.
Sorry, there was a typo in the calculation ($490 vs. $49). Here's the fixed version:
Applying the same strategy, but now using a strike that is 10% off of the current spot and using current quotes gives that yield:
Now we have a big cushion of 10% before the stop can hit.
The total credit is of course: 0.49 * 100 = $49 for each contract.
When using just 1 contract the capital bound is: 26 * 100 = $2600,
of which only 1/5 ($520) is our own money, and the rest ($2080) is margin.
The profit is fix 9.42% in 2.7 months (annualized 49.2%) as long as the stock doesn't fall more than 10%.
(IMHO very unrealistic that INTC falls more than 10%)
Btw, in this analysis the "right entry time" has not been analysed, ie. FA & TA, as well ex-dividend dates etc.
The Call quotes are of course not needed here, it's just for the archive...
Now, this I would classify as a "safe investment".
PS: "mid_put" of course indicates that we are using a limit order in between the Bid and Ask spread, not market order...
Applying the same strategy, but now using a strike that is 10% off of the current spot and using current quotes gives that yield:
Code:
INTC
29.59 -0.21 (-0.70%) 4:00PM EST on 2016-02-29-Mo
Calls May 20, 2016
Strike Price Change Bid Ask Volume Open Int
...
26.00 4.00 0.00 3.95 4.10 - 22
27.00 3.50 0.00 3.15 3.25 - 139
28.00 2.48 -0.15 2.40 2.53 5 172
29.00 1.95 +0.25 1.75 1.79 105 8032
30.00 1.33 -0.02 1.20 1.24 38 5529
...
Puts May 20, 2016
Strike Price Change Bid Ask Volume Open Int
...
26.00 0.45 -0.02 0.47 0.51 14 3122
27.00 0.57 -0.08 0.65 0.71 21 2668
28.00 0.95 +0.02 0.92 0.98 1106 7248
29.00 1.26 -0.03 1.28 1.35 17 8029
30.00 1.73 +0.03 1.76 1.82 30 1152
...
Code:
cur_spot = 29.59
days = 81 (= 2.7 months)
strike = 26 (about 10% lower than the current spot)
mid_put = (0.47 + 0.51) / 2 = 0.49
credit1 = mid_put = 0.49
profit_potential_normal = 0.49 / 26 * 100 = 1.8846%
profit_potential_with_5x_margin = 5 * 1.8846 = 9.42%Now we have a big cushion of 10% before the stop can hit.
The total credit is of course: 0.49 * 100 = $49 for each contract.
When using just 1 contract the capital bound is: 26 * 100 = $2600,
of which only 1/5 ($520) is our own money, and the rest ($2080) is margin.
The profit is fix 9.42% in 2.7 months (annualized 49.2%) as long as the stock doesn't fall more than 10%.
(IMHO very unrealistic that INTC falls more than 10%)
Btw, in this analysis the "right entry time" has not been analysed, ie. FA & TA, as well ex-dividend dates etc.
The Call quotes are of course not needed here, it's just for the archive...
Now, this I would classify as a "safe investment".
PS: "mid_put" of course indicates that we are using a limit order in between the Bid and Ask spread, not market order...
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The beauty of this strategy is also:
- one does just 1 trade in 2.7 months... ;-) (maximally 2 trades if the stop gets hit).
- to get stopped-out is very unrealistic because of the big cushion of 10% calculated-in.
- a fix profit of 9.42% in 2.7 months (annualized 49.2%) as long as the stock doesn't fall more than 10%.
- the profit (ie. the credit) is received immediately when opening the position.
(but this is of course the "unrealised profit" up-front; only after the expiration date it becomes "realised profit").
- the own account (excluding the credit) is protected by the 10% stop level, ie. is risk-free under normal market conditions.
- ...
Of course in reality one would do many such trades with different stocks in parallel to apply diversification.
PS: the annualised profit has to be reduced by the interest paid for the margin. For example at the broker IB the interest paid for margin is 1.87% p.a.
That means we have to subtract that from the 49.2% above, giving us a net annualised profit of 47.33%.
- one does just 1 trade in 2.7 months... ;-) (maximally 2 trades if the stop gets hit).
- to get stopped-out is very unrealistic because of the big cushion of 10% calculated-in.
- a fix profit of 9.42% in 2.7 months (annualized 49.2%) as long as the stock doesn't fall more than 10%.
- the profit (ie. the credit) is received immediately when opening the position.
(but this is of course the "unrealised profit" up-front; only after the expiration date it becomes "realised profit").
- the own account (excluding the credit) is protected by the 10% stop level, ie. is risk-free under normal market conditions.
- ...
Of course in reality one would do many such trades with different stocks in parallel to apply diversification.
PS: the annualised profit has to be reduced by the interest paid for the margin. For example at the broker IB the interest paid for margin is 1.87% p.a.
That means we have to subtract that from the 49.2% above, giving us a net annualised profit of 47.33%.
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Do you realize that you don't have any cushion or bid/ask spread wouldn't be an issue.
Hmm. can you give an example with numbers?
Come on guys, admit that this is indeed a brilliant strategy,
even if it is just a conservative investment strategy without any "action" like in daytrading ;-)
I like especially the maths behind it: everything can be pre-calculated before opening the trade and can clearly be verifed by everyone.
I have not provided yet some probability computations, but that will follow soon...
even if it is just a conservative investment strategy without any "action" like in daytrading ;-)
I like especially the maths behind it: everything can be pre-calculated before opening the trade and can clearly be verifed by everyone.
I have not provided yet some probability computations, but that will follow soon...
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