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Why isn't everybody selling options?
- Thread starter jr07
- Start date
Quote from blcdoc:
Well I am the first to admit I have very little experience in trading options on single stocks (compared with indices) so I would love to hear the example. I am sure one exists.
Is there a difference in me buying a $100,000 house from for $1,000,000; or me just giving you $900,000??
you said selling puts is the identical to selling hurricane insurance. its not. if you sell hurricance insurance you are exposed to a total and non recoverable loss.
if you sell insurance on the spy you are not exposed to a total loss. do you think the spy is going to disappear anytime soon? you have recovery options.
Quote from Free Thinker:
you said selling puts is the identical to selling hurricane insurance. its not. if you sell hurricance insurance you are exposed to a total and non recoverable loss.
if you sell insurance on the spy you are not exposed to a total loss. do you think the spy is going to disappear anytime soon? you have recovery options.
It is exactly the same thing. Your recovery example makes no sense in a liquid market. I am not sure why owning an asset of which we have no knowledge of its future value is a recovery option, unless it is an illiquid market which makes it difficult to get the asset (clearly not the SPY).
In the Hurricane example, pay out your premium then buy the SPY as a recovery option? the same thing isn't it? Or pay out your premium and buy the cheap wrecked land, with the recovery option the land increasing in value. You have not argument here.
Theoretically maybe... In practice, if you have ever been properly short gamma during a blowup, you'd know that it's emphatically NOT the same risk (unless, of course, you're Warren Buffet and effectively have an unlimited amount of change jingling in your pockets; or you don't mark-to-mkt for other reasons, like insurance co's).Quote from Free Thinker:
this is what every long only investor faces. it is called risk taking. selling puts is the same risk as being long the asset.
Quote from Free Thinker:
this is what every long only investor faces. it is called risk taking. selling puts is the same risk as being long the asset.
OK got it!! We been smashed to bits after selling deep OTM puts which have gone ITM by expiry... and our recovery option is now "risk-taking". Bring it on!!
Free Thinker, rather than argue theoreticals, let's look at facts.
Are you truly unaware that zillions of people have gone bust selling puts? Are you saying that can't happen?
If you have the discipline to limit your option selling to puts on assets that, if exercised, you would be happy to own as an investment, that's great. But you don't really think that's what everyone does, do you?
Are you truly unaware that zillions of people have gone bust selling puts? Are you saying that can't happen?
If you have the discipline to limit your option selling to puts on assets that, if exercised, you would be happy to own as an investment, that's great. But you don't really think that's what everyone does, do you?
Quote from DWV:
The May performance numbers will not be out until the first week or so of June. To give you an idea of what can happen to these guys, LJM Partners (manages over $180M) lost 72% in two months (Sept and Oct of 2008). He had been in the business for 10 years and was one of the top ranked CTA's based on average annual return over that period.
If you want to see how they did look up LJM, Ace Investment Strategists and Ansbacher - they are 3 of the biggest premium sellers.
i was curious about how ansbacher did through the crash. it was not as bad as i expected. his drawdowns and performance was very comparable to what happened to buy and hold mutual funds during that period.
Year Annual
Compounded
ROR Maximum
2010 4.37%
2009 23.67%
2008 -40.10%
questions:Quote from atticus:
GOOG is trading at 520 with the June 470/520/570 neutral fly at 20. $2,000 controls 100 shares at expiration (from 470-570). wtf do you insist on making comments on topics in which you're out of your depth?
1-how much total margin would you need in your acount to make this trade?
2-what would be the total profit from this trade?
Actually this is not true.Quote from increasenow:
this is the easiest options question to answer...BECAUSE IT TAKES HUGE AMOUNT OF CASH $$$ TO SELL/WRITE NAKED OR EVEN COVERED OPTIONS OR SPREADS TO MAKE ANY REAL MONEY!!...go ahead and ask your broker the margin requirements on these type trades...makes one wnat to run and trade emini futures with daytrade margins...
Lets take as an example IBM stock. If you own 100 shares at $132, your margin requirement is about 4k (assuming 30% margin). Shorting 1 June 130 put will reduce the margin requirement to to around 2.4k. in case IBM is unchanged by June expiration, you make 10% return on margin in 5 weeks plus you have 4% downside protection.
Making it a spread (say 125/130) will reduce the requirement to $380 only and make your maximum profit around 32%.