Well, thanks for the heads up guys. I might reduce my exposure to this strategy as a result of what you guys have said here. I'm thinking just 1/3 of my capital would suffice. 1/3 to good old fashioned value investing. 1/3 to this hedged index ETF strategy I came up with based on the VIX.
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What strategies do you guys use?
- Thread starter klurby
- Start date
Personally I don't do these often (not never) and not a big fan, as they have the risk profile as covered calls. And not a big fan of cc either. But, that's a personal preference. As long as one realizes that the expiration graph may be well above the unrealized loss prior to expiration due to an increase in negative vega and negative gamma driving the unrealized loss higher. As you say "if not over-leveraged" relative to account size this I guess can work. Its just that some people look at the expiration graph and think, that's the same loss if I were long the underlying. Problem many don't make it to expiration because they are over leveraged relative to account size and get a margin call or their unrealized loss before expiration is much greater than it would be before any mental stop on the underlying is even hit. But, if you got it down and it makes you money over time more power to you.
Quote from jones247:
Actually, atm short puts with proper risk mgmt is easier to "stomach" than FOTM short puts. If not over-leveraged, atm short puts has a similar downside risk to a long position.
Walt
Honestly though I have a hard time understanding the allure of this strategy that apparently many think is great. It's bullish directional really and if you win, you profits are limited. If you are bullish enough to sell a put, I think it's better just to go long the underlying with a stop and a target. To me the only way you can win more than lose, if you are selling puts in an underlying that is consistently trending up. If you have something trending up, why not simply buy on dips, put in a stop and a target?
Quote from JSHINV:
Personally I don't do these often (not never)......
Quote from JSHINV:
Honestly though I have a hard time understanding the allure of this strategy that apparently many think is great. It's bullish directional really and if you win, you profits are limited. If you are bullish enough to sell a put, I think it's better just to go long the underlying with a stop and a target. To me the only way you can win more than lose, if you are selling puts in an underlying that is consistently trending up. If you have something trending up, why not simply buy on dips, put in a stop and a target?
They have their place. IMO they appeal to "thrifty" types who must buy at a discount to the market. Most people I know who trade a lot of CCs are well-off, clip coupons and drive their cars into the ground.
I like to sell puts on the odd stock I'd like to own if it's trading in the top three deciles on vol and I plan to hold it six to twelve months. Better still if it's late in the year and I can defer taxation. I also run some OPM in a CC (short put) fund because it is so appealing to "long only" types.
Atticus, I appreciate the comment. Interestingly I fit the profile of the thrifty type. I retired last year at 56. My cars are 9 and 6 years old. I don't clip coupons but my wife sure does.
Interesting. You are selling when volatility is high meaning it will probably snap back down and quite some time to expiration. I see the logic in this case, because the "discount to the market" is probably a pretty good discount. Not the same thing if I were to sell a August ATM SPY put - little cushion there.
Interesting. You are selling when volatility is high meaning it will probably snap back down and quite some time to expiration. I see the logic in this case, because the "discount to the market" is probably a pretty good discount. Not the same thing if I were to sell a August ATM SPY put - little cushion there.
Quote from atticus:
They have their place. IMO they appeal to "thrifty" types who must buy at a discount to the market. Most people I know who trade a lot of CCs are well-off, clip coupons and drive their cars into the ground.
I like to sell puts on the odd stock I'd like to own if it's trading in the top three deciles on vol and I plan to hold it six to twelve months. better still if it's late in the year and I can defer taxation. I also run some OPM in a CC (short put) fund because it is so appealing to "long only" types.
Quote from JSHINV:
Honestly though I have a hard time understanding the allure of this strategy that apparently many think is great. It's bullish directional really and if you win, you profits are limited. If you are bullish enough to sell a put, I think it's better just to go long the underlying with a stop and a target. To me the only way you can win more than lose, if you are selling puts in an underlying that is consistently trending up. If you have something trending up, why not simply buy on dips, put in a stop and a target?
Correction: short puts are neutral to bullish.
Learn about patterns.
Now, this does not mean conventional patterns, this is something you must do on your own.
Start by spotting one pattern, only one, one that has the following properties.
- It's fairly frequent
- Provides reward > risk
- Works often
- Appears and works on most timeframes and instrument
- Learn what invalidates it
- Now master it
- As you are mastering it, try to spot a second pattern
- When second has been mastered, add it to your arsenal
- Repeat the process
NAD
Now, this does not mean conventional patterns, this is something you must do on your own.
Start by spotting one pattern, only one, one that has the following properties.
- It's fairly frequent
- Provides reward > risk
- Works often
- Appears and works on most timeframes and instrument
- Learn what invalidates it
- Now master it
- As you are mastering it, try to spot a second pattern
- When second has been mastered, add it to your arsenal
- Repeat the process
NAD
Like asceding and descending wedges.
Quote from noaveragingdown:
Learn about patterns.
Now, this does not mean conventional patterns, this is something you must do on your own.
Start by spotting one pattern, only one, one that has the following properties.
- It's fairly frequent
- Provides reward > risk
- Works often
- Appears and works on most timeframes and instrument
- Learn what invalidates it
- Now master it
- As you are mastering it, try to spot a second pattern
- When second has been mastered, add it to your arsenal
- Repeat the process
NAD