study: selling puts outperforms covered calls.
- Thread starter Free Thinker
- Start date
listen, selling premium is a great strategy on paper. The statistics look great and yes more options expire worthless than in the money. However, when selling NAKED you are basically the insurance company when you sell puts and calls... yes you will make lots and lots of small gains month after month. The gains will add up to a nice return and then BAM!!!!!! BOOM! a hurricane hits, a famine hits, a flood hits, a a forest fire hits, and then you lose everything it took you six months to make. You have to cover all that premium just like the insurance companies have too and guess what you do not have millions of people paying mandatory premiums every month.. you are screwed.
I advocate selling premium, but you need to be even more disciplined and cut losses and have a set plan even more than out right trading.
Be careful liars use statistics and statistics never lie
I advocate selling premium, but you need to be even more disciplined and cut losses and have a set plan even more than out right trading.
Be careful liars use statistics and statistics never lie
:/ If you do it right selling insurance is the best way to make money, however you need a large account size to have meaningful returns and proper risk diversification (perhaps 10m+). I wouldn't try being the insurance company on my own with less than a few million in capital.
Also cutting losses on sold premium often gets expensive because most options (that are most worth selling) have pretty wide spreads and the commissions will eat you alive.
Quote from spindr0:
Might wanna rethink that one
Well since I don't trade straight stocks long or short it's kind of a moot point anyway.
The studies show that the PUT and BXY Indexes beat the SPTR (s&p total return) buy 1-3 %.
However the indexes do not account for the cost of taxes, slippage, or commisions.
Once those costs are added, those strategies lose their advantage. The biggest expense would be the 35% tax on short term cap. gains.
A 16% pretax gain is needed just to match the SPTR net taxes.
Also, since premium is invested in treasuries, income from holding treasuries is a significant part of the performance of the PUT index.
However the indexes do not account for the cost of taxes, slippage, or commisions.
Once those costs are added, those strategies lose their advantage. The biggest expense would be the 35% tax on short term cap. gains.
A 16% pretax gain is needed just to match the SPTR net taxes.
Also, since premium is invested in treasuries, income from holding treasuries is a significant part of the performance of the PUT index.
Quote from stevegee58:
Except you get paid a higher premium for selling puts than you do selling calls. Frequently the skew is significant.
In addition your risk exposure to long stock positions is higher when selling calls. When selling puts you're only long the stocks that were put to you, hopefully for a good premium.
I read the article BTW.
yeah that skew can get nice, especially on a big VIX spike and panic on fresh news event.
In IRA, you cannot write contracts even if it's cash covered, the most they will let you do is long spreads and that requires you to sign the agreement in blood and hand over your firstborn to fidelity...
So that's another reason to write covered calls instead of cash covered puts - because you cant. Although i have switched to leap ditm calls (5 strikes in) + front month "covered" 1-2 strike otm calls for some additional leverage, seem to be working better so far.
So that's another reason to write covered calls instead of cash covered puts - because you cant. Although i have switched to leap ditm calls (5 strikes in) + front month "covered" 1-2 strike otm calls for some additional leverage, seem to be working better so far.
you are wrong about that. get a real broker.