Minor correction:
Since the margin makes up only 4/5, the net annualised profit then makes 49.2 - 1.87 * 4/5 = 47.70%
Strategy: Selling Put Options: The Best Income Method?
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Minor correction:
Since the margin makes up only 4/5, the net annualised profit then makes 49.2 - 1.87 * 4/5 = 47.70%
Btw, the implied volatility for put strike=26 is according to finance.yahoo.com 6.25%:
26.00 INTC160520P00026000 0.45 0.00 0.00 0.00 0.00% 14 3122 6.25%
Here's more on volatility of INTC:
Volatility as of last Friday (calculated last Saturday at http://www.optionstrategist.com/calculators/free-volatility-data )
Symbol (option symbols) hv20 hv50 hv100 DATE curiv Days/Percentile Close
INTC 27 33 28 160219 25.69 600/ 84%ile 28.71
Ie. the current volatility of the stock in the last 100 days is 28%,
and the current implied volatility over all its options is 25.69%
26.00 INTC160520P00026000 0.45 0.00 0.00 0.00 0.00% 14 3122 6.25%
Here's more on volatility of INTC:
Volatility as of last Friday (calculated last Saturday at http://www.optionstrategist.com/calculators/free-volatility-data )
Symbol (option symbols) hv20 hv50 hv100 DATE curiv Days/Percentile Close
INTC 27 33 28 160219 25.69 600/ 84%ile 28.71
Ie. the current volatility of the stock in the last 100 days is 28%,
and the current implied volatility over all its options is 25.69%
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Intc at $29.59 the May $26 Puts have a delta of .18. with a bid ask of .47/.51.
Intc gaps open $0.50 then assuming all else stays the same the option will change in value approximately $0.09. Assume a new b/a spread now of $0.56/$0.60.
How do you close out your position for no loss? And before you come back with the silliness that it cannot happen, INTC has gapped several times this month already. What if it gaps lower and keeps moving lower as in June 2015 or Jan 2016. You will not be able to get out with no loss or a risk free trade.
Your strategy has just as much risk as perhaps owning the stock where it could drop sharply minus the OTM amount but none of the same upside reward. Does that make it a bad strategy? Not necessarily but not so brilliant and risk free as you imply. It is your cheering this strategy as something amazing when it is the most basic strategy traders learn about. To think it will perform way better than it usually does means you have not even tested this with real money. I woudl expect a put selling strat to hope to make 15% a year on average but usually ends up less as traders chase higher premiums in increasing vols.
In fact it is the most basic strategy in options that people learn first so it is understandable that a newbie thinks they found a way to make 47% annualized with no risk. You could do this and make decent money, even above average returns in a sideways market. But you will underperform in a bull market and lose money in a bear market.
Intc gaps open $0.50 then assuming all else stays the same the option will change in value approximately $0.09. Assume a new b/a spread now of $0.56/$0.60.
How do you close out your position for no loss? And before you come back with the silliness that it cannot happen, INTC has gapped several times this month already. What if it gaps lower and keeps moving lower as in June 2015 or Jan 2016. You will not be able to get out with no loss or a risk free trade.
Your strategy has just as much risk as perhaps owning the stock where it could drop sharply minus the OTM amount but none of the same upside reward. Does that make it a bad strategy? Not necessarily but not so brilliant and risk free as you imply. It is your cheering this strategy as something amazing when it is the most basic strategy traders learn about. To think it will perform way better than it usually does means you have not even tested this with real money. I woudl expect a put selling strat to hope to make 15% a year on average but usually ends up less as traders chase higher premiums in increasing vols.
In fact it is the most basic strategy in options that people learn first so it is understandable that a newbie thinks they found a way to make 47% annualized with no risk. You could do this and make decent money, even above average returns in a sideways market. But you will underperform in a bull market and lose money in a bear market.
Such gaps have of course a reason. Mostly it is after releasing the (disappointing) quarterly Earnings Results (ER), and when dividends get paid out.
A through analysis before opening the position would avoid such dates...
I'm currently in the stage of just studying and paper-testing the strategy. Nothing more, nothing less.
Regarding not profiting of a possible upside reward of the underlying: come on, one can't have it all, one has to decide what one primarily wants and what is realistic.
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You are now entering very ignorant territory as I can find many days of price gaps that were not earnings related. Since you have trouble with reasing comprehension I said price gaps several times this month. Does INTC release earnings several times in a month becuase that is news to me. I think you need to stop and learn a little more before you claim to be knowledgable.
A question to the experts here:
which volatillity value would you use to calculate the probability that the INTC stock falls below 26 till the expiration date of the May options in 2.7 months (81 days)?
The price of the stock as of yesterday is 29.59 (to be taken as the basis).
What probability value do you get?
which volatillity value would you use to calculate the probability that the INTC stock falls below 26 till the expiration date of the May options in 2.7 months (81 days)?
The price of the stock as of yesterday is 29.59 (to be taken as the basis).
What probability value do you get?
Then just simply prove what you say, and we will see if you are right or wrong... Come on, I'm challenging you!
I have seen many "dummschwaetzer" here, allegedly experts...
( http://www.dict.cc/german-english/Dummschwätzer.html )
Just look at the price chart and you will see the price gaps over the last several weeks. If you are too lazy to open a price chart then you should not be trading. proven...
Ok, here also the win probabilities:
Code:
Win probabilities using these parameters:
Current Stock Price $29.59 (as of 2016-01-29-Tu)
Strike 26.00
Stock volatility 28.00%
Days to Expiration 81.00
Put Probabilities:
TargetStockPrice WinProbability CloseBelowTargetProbability
$26.00 83.66% 16.34%That's IMO a good high Win-Rate.
And the complement does not neccessarily mean any loss to the own account --> cf. previous postings.
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your patience is admirable