How will you collect premium if your avg price far above current price? Are you going sell calls below your avg price to get meaningful premium?
Those results were during the decline from $198 on July.31 down to $162 Oct.27
I tracked every day and accounted for when I would have been assigned at 1 otm, and when I would have been called out at 1 otm, including all the premium collected along the way.
Yes there is, closing the option without taking assignment performs way worse than taking the assignment and continuing to sell premium. Whether I backtest 10 days, 90 days, 365 days, 1000 days the P/L is consistent with the same amount of contracts.
Hea meant selling puts, i believe.
And he averages down but instead of the underlying he just sells (longer term, maybe?) puts so he's avg entry is lower thanks to the premium.
nah,its an illusion..QLAI is right...
My buddy does this,and every other month he get mauled on some cheap put he sold,only to sell cheap calls to pick up some pennies in front of the freight train..And of course,he sells calls that locks in losses when the stock rips the other way...
You obviously have to roll way out,even though the trade doesnt stand on its own..
WX Achilles heel is he cant stomach taking a loss,and focuse way too much on probability of making money...Doesnt look at expected return/theoretical edge
You're explaining two different strategies. One averages down, meaning you potentially need to allocate much more capital, the other one takes losses on the spot (actually, i'm not sure what strategy that second one is). And How are you having the same amount of contracts in use if one avg down and the other doesnt??
You completely ignore the break even. Think of it like a dividend stock...you don't cash out just because you lost some capital on the downturn. You continue to take premium and wait it out.
This is exactly the same, I sell 1 otm puts until assigned, and then I sell 1 otm calls until called out. I choose 1 otm just because its an easy benchmark. If I get assigned after a huge kerplunk, I continue on as usual. No rolling out, no put protection, no break evens...just continue plowing on lol.
And what happens when the stock is down 20 percent??
Which crap call do you sell and how far out??
And what edge do you have ?? Thats the best trade you can find??
Let's say 20% over a week? Ok so if I'm doing it daily 1 otm put, I sell a 199, and price drops to 190. Ok I take a ($10*100) $-1000 paper loss on the assignment.
Day 2: Sell an 1 otm call and collect $65
Day 3: Sell an 1 otm call and collect $65
Day 4: Sell an 1 otm call and collect $65
Day 5: Sell an 1 otm call and collect $65
Day 6: Sell an 1 otm call and collect $65
Day 7: Sell an 1 otm call and collect $65
Day7: get called away at a $100 (1otm) profit.
Total paper losses: $-1000
Total collected: $490
Total realized losses: $-510
So even in your worst case scenario I am pulling out of it np. It's basically just a manual version of a dividend position EXCEPT I am gaining the p/l from getting called away at a profit to offset the paper loss when I got assigned. With a dividend you just wait it out, so the recovery would take longer.
You really want to be short 1 deep put vs short 6 OTM calls?
And how are you getting the same premium every day??
What strike,ho far out?
And you didnt lose 1k..And how do you get called away at 100??
There is no theoretical edge mechanically selling calls or puts. MM are not charitable.Doesnt look at expected return/theoretical edge