When Danger Lurks In Front of Cash Secured Puts

S

SpanishMainCapital

Greetings,

I am selling cash secured puts 1 week out on some blue chip stocks and so far (touch wood) its been very lucrative. But i want to learn more on escape strategies should the market rapidly turn against the position.
Typically I trade Buffet stocks' options 1 -1 1/2 weeks out at around 20-30 delta, i close the position when the price hits 5c for free at TDA and then do it over and over again.
Now in addition I also factor in VIX being under 15.
Here's my question, what are escape strategies should VIX rapidly escalate to around 20+ , like it did at the start of this year?
Would it be better to commence diagonals to maintain the position delta? Or would it be better to do Calendar rolls? Or heck just close the position for a loss and try another unaffected ticker?

Sorry for the long post but its important you guys understand my predicament,say the position is ITM, my gut feeling is to do a Calendar roll 1$ or 50c lower until it recovers above the strike.
What do the masters of put selling do?

Thank you!
 
You have probably already considered this, but if your trade is working well enough and merely want to save your shirt if a huge drop occurs, you could consider selling a PUT credit spread with the long strike at say 3-10 delta, then still trade like you are currently doing. This takes some off each trade, but does limit you max loss. - you buy the insurance with each trade (Not very original, but who knows)
 
selling puts on blue chips is not such a great strategy, mainly because you get the same IV as the SPY but the added risk of individual stocks...bad bad bad. Not too uncommon to see a blue chip fall 2% in the morning when SPY is down a little.

Also you should never use TDA for option trading. they are a scam
 
tradelosses said:
selling puts on blue chips is not such a great strategy, mainly because you get the same IV as the SPY but the added risk of individual stocks...bad bad bad. Not too uncommon to see a blue chip fall 2% in the morning when SPY is down a little.

Also you should never use TDA for option trading. they are a scam
More...

Thinkorswim is the best option trading platform imo, I have negotiated a good price per contract with them so i use them.I also have IB but prefer TOS.
Regarding the strategy, again I disagree because putting 20k of risk capital on SPY (219 last i checked) to earn 30$ is not worth it.
The converse is also true, I have seen SPY wobble but some of the solid stocks hardly move.
 
tradelosses said:
selling puts on blue chips is not such a great strategy, mainly because you get the same IV as the SPY but the added risk of individual stocks...bad bad bad. Not too uncommon to see a blue chip fall 2% in the morning when SPY is down a little.

Also you should never use TDA for option trading. they are a scam
More...

I don't know why you insist on calling them a scam. It was stated before in your post about this before that they simply gave access to the market. Your new broker " with better fills" is just selling your order flow to a 3rd party.

You send order, your broker sends it to their buddies, they get first dibs on it, their required to provide a price improvement if they want the order or they would be jumping the order book queue which isn't allowed. If they don't want to improve the order, it gets sent to the exchanges.

You could expect, that if you would send a limit with the same price as your price improvement you received, someone or the same 3rd party would pick the order up on the exchanges.

Theirs nothing scam about TOS sending your order to market as you asked. Your new broker " with better fills" order flow partners are not required to deal with every broker. They don't have to deal with TOS or any other broker if they don't want to. Their going to probably kick back your new broker some cash for your order and now your happy and their happy.

The scam is that your probably not getting the best deal from the market ( if you used a limit order) and your broker isn't sharing as much of the kickback with you as possible. Their buddies give you a few cent improvement and give your broker a few cents, when they could give you all of it if they wanted.
 
I almost never sell naked puts but instead sell put credit spreads. With a credit spread you can vary the width of the spread to adjust both the risk you take and the premium you receive. If you sell naked puts and the bottom drops out you will be put the stock...is that what you want? What will you do then? You can sell calls at that point but if the drop is large it could take a long time to get your money back.

Never sell puts at a strike price at which you would not be willing to own the stock.

In either strategy, selection of the stock and the timing will make a big difference in your success.

I DO sell naked puts on stocks or ETF's that I want to own as income vehicles because I would like to collect the dividend.

There is a perennial argument about whether it is best to sell puts on individual stocks or on the broader market. I think you CAN do better with individual stocks...until something happens. So you need to pay attention to what is going on with the company. Like anything else the bigger the risk the higher the pay.
 
oldnemesis said:
I almost never sell naked puts but instead sell put credit spreads. With a credit spread you can vary the width of the spread to adjust both the risk you take and the premium you receive. If you sell naked puts and the bottom drops out you will be put the stock...is that what you want? What will you do then? You can sell calls at that point but if the drop is large it could take a long time to get your money back.

Never sell puts at a strike price at which you would not be willing to own the stock.

In either strategy, selection of the stock and the timing will make a big difference in your success.

I DO sell naked puts on stocks or ETF's that I want to own as income vehicles because I would like to collect the dividend.

There is a perennial argument about whether it is best to sell puts on individual stocks or on the broader market. I think you CAN do better with individual stocks...until something happens. So you need to pay attention to what is going on with the company. Like anything else the bigger the risk the higher the pay.
More...

Good info - thanks.
Mine are always cash secured in the larger accounts and I use margin only in smaller accounts.
Also I do this on stock I have absolutely no problem owning.

Im trying to figure out in retrospect how I would have fared in Jan this year with this strategy, and what indicators to use to thwart a calamity.
I think I have an idea in VIX , with it hovering around 20 in Jan probably better to close all positions and wait for the aftermath when one could reenter the market at 20 delta and reap the bounce back.
 
Another "twist" to merely observing VIX level... Vix in Backwardation: High danger, Vix transitions to full Contango: Clear Sailing! -- Sometimes this stutters but often is useful.
 
tradelosses said:
selling puts on blue chips is not such a great strategy, mainly because you get the same IV as the SPY but the added risk of individual stocks...bad bad bad. Not too uncommon to see a blue chip fall 2% in the morning when SPY is down a little.

Also you should never use TDA for option trading. they are a scam
More...
Part 1: Whether "great" or not dependent on traders' goals and risk tolerance. Blue Chips will typically have a higher IV than the Indexes they are a part of.
Part 2: False! TDA is not a Scam. (but do not trade bonds with them)
 
stepandfetchit said:
Part 1: Whether "great" or not dependent on traders' goals and risk tolerance. Blue Chips will typically have a higher IV than the Indexes they are a part of.
Part 2: False! TDA is not a Scam. (but do not trade bonds with them)
More...
Correction: instead of "do not trade bonds with them" Should have stated "there are better sources for bond trading"
 
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