Swingtrading using Options.

Thank-you for your suggestion Chartwiz. I am sure it would suit a lot of people, but I'm afraid that writing naked options just doesn't suit my temperament. I really am a rather risk-averse person. The two reasons I gave for looking at options indicate this. I have sometimes written naked puts, but only in my long-term accounts on stocks that I would actually want to hold. I also occasionally write calls on issues that I already hold in those accounts. I pocketed the premium on the QQQ Dec 40 call yesterday for example.

I know that conventional wisdom says that the smart players are on the selling side, but as def says, you can only hit the home runs on the buying side. This I know from personal experience as I did quite well with option buying in my early years of trading on a longer timescale - 300% in my best year. Whether we make money buying or selling really all depends on our skill in anticipating the future behavior of the stock and how much we are prepared to pay or take to back up our hunch.

I already had in mind def's suggestion of tracking the behavior of the appropriate option in parallel with my stock trades. I was just trying to get a feel on whether I might be wasting my time. There is sufficient encouragement so far in the thread to suggest it would be worthwhile.
 
Chartwiz,

I do pretty much the same strategy but I prefer to use a credit spread, ie sell an ATM or ITM put and buy one a couple of strikes further out. Then my loss is capped going in. If the trade turns against me, I can always cover the short side and let the long put ride. If it goes my way, the ITM put has more delta than the OTM and the spread narrows.

Selling naked puts is more profitable and will have a higher win percentage probably, but you are exposed to the catastrophic stock or market risk that blows by your exit point, such as 9/11.
 
Maybe this could be adapted for stocks:

I devised a strategy for soybeans using options where I'd buy an OTM call at say 30 when the price was 32 and sold two calls @ 40. This makes you net short 1 position. The two calls sold paid for the 1 purchased and gave a little profit depending on the volatility (5 years ago). You then made money if at expiration it settled between the call purchase and the two sold, or if it dropped below the entry price for the long call (then you kept excess premium). The advantage was the large area where you could make money, all the way down to zero and all the way up to 40, and the cheap entry price (free +). If the commodity advanced passed your two short calls, you then put on another spread of 1 long two short up higher and keep riding it up, eventually assuming it would fall back. I tried this for real in 1995 or 96, I believe, when Soybeans went into a bull market and I had to keep putting on new spreads to protect myself. After 6 months of sweating it out, I finished down $100. I've never done it again, but if it wasn't for that big rally, I think it would've been a profitable strategy.
 
Originally posted by AAAintheBeltway
Chartwiz,

I do pretty much the same strategy but I prefer to use a credit spread, ie sell an ATM or ITM put and buy one a couple of strikes further out. Then my loss is capped going in. If the trade turns against me, I can always cover the short side and let the long put ride. If it goes my way, the ITM put has more delta than the OTM and the spread narrows.

Selling naked puts is more profitable and will have a higher win percentage probably, but you are exposed to the catastrophic stock or market risk that blows by your exit point, such as 9/11.
More...

When I trade & put an option on...I am also trading the stocks..........for instance........I traded only the long side of the stocks that I posted HD FDX MDT ect we had about 15 of them.........from Dec 13th.........I have not used any option stratagies from right before 9/11 BUT will after the holiday.......BUT
going
into new year........if i see a high probitbly trade.......I will trade the stock & also sell some options with it.........I would BUY the stock & sell the puts basically to magnify my trade.........Chris
 
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