Writing Covered Puts

Quote from exQQQQseme:

I have no idea what a conversion/reversal is, nor do I feel I have any need to know.

Neither I nor Ursa knows what trolling is so he has asked me to look it up.

I agree with Ursa that I am uneducated, particularly if uneducated means not having read the books that he is endorsing as the only worthwhile books on the subject.

MTE, you have asked for an explanation of what I am doing. I have done so often in this thread, but what the hell, here goes one more time.

1. I have always been big on shorting stocks. So I look for stocks with the following criteria:

a. non dividend paying
b. large cap
c. optionable
d. high volume both stocks and options
e. I look for stocks which have been on an incline for several months, but unlike a,b,c, and d, this is not imperative.

Let's say I short 500 shares. At this point I am negative 500 deltas. For every dollar the stock goes down, I make $500. For every dollar the stock goes up I loose $500.

2. Then I look at the stock chart. I try to decide which direction the stock is likely go ove the next few weeks: up, down, or sideways.

3. Based on my conviction in #2, I look for positive deltas to reduce the negative 500 deltas, or if I am slightly bullish, which is seldom the situation, I might even find more than 500 deltas.

Using options, there are only two ways to get positive deltas:

a. buy calls
b. sell puts

I make my decision, place my order, and hope to fill.

4. I adjust my deltas from time to time with various quantities. It is an ongoing thing. Seldom, do I buy back my short shares. I adjust only the options.

A lot of nice well intentioned people here tell me I am making a mistake because I could accomplish the same thing with synthetic equivalencies. To me, same means same. So if it's the same for the goose, it's the same for the gander. So what is all the ranting and raving about?

Some have tried to answer this by telling me that my way results in greater transactional costs. My response simply is that I have been trading stocks and options for many years and I fully understand how to account for such charges. Thus far it has not affected me adversely, so I see no reason to change.

Ursa, you are not aware of my educational credits or any of the books I have read. Likewise, I am not aware of your background or readings. Therefore since neither of is informed on the subject as far as the other is concerned, there is no need for further reference to where the other person is coming from. Stick to the subject matter.
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Bob,

I asked you to explain what you do with respect to this post:

Quote from exQQQQseme:

Speaking of intrinsic or extrinsic values, did you all know that if you have a collar or reverse collar with the strike prices of the puts and calls at the same amount, that the amount of the aggregate intrinsic value never changes?

Example: Short 1,000 shares of UNDerlying. Long 10 calls and Short 10 Puts, both at $90. No matter what the price of UND, the intrinsic value will always be negative $90,000. Therefore, as long as your net extrinsic values are increasing, you are making money. If they are decreasing, you are loosing money, and you need to look into adjusting your extrinsics.

Bob
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Here you say that if you short 1000 stock, buy 10 call and sell 10 puts (at the same strike) you'll be somehow making money! This is called a reversal or in more layman's terms you short the stock and then long the synthetic stock so your net position is flat. You won't be making any money as your position is equivalent to nothing!
 
MTE, you're right if I were to stop right there. But, I don't. I wait until the stock moves, usually 1 strike price, then I adjust. The profit potential lies with the adjustments, not with just sitting on a present position.

Also, using the combination where we presently are...that is short 1000, Long 10C and Short 10P, usually the Calls are at a far out month and the short calls are at a short month. And before someone jumps in and tells me, I do realize that at this point, this is a synthetic calendar spread. One advantage of this over an actual calendar spread is that I can, if I wish, pick up a few additional negative deltas by shorting additional stock. And, I can do it in increments of less than 100 shares. I recognize that this is a small advantage, nevertheless an advantage. Every little bit helps.

If one looks at the common element of all of my postings, I start with shorting stock. Then I build around it. Then I contemplate adjustments and consider my new Greeks on a proforma basis. If I like what I see, I put in an order. If I don't like what I see, I keep tinkering, using a program I subscribe to, until I like what I see. That's what I do, and I'm very happy with the results. So I share, both here and elsewhere.


Bob
 
Ursa, you are the one who makes the personal attacks through the use of such terms as "ignorance". You won't find anywhere where I have resorted to those kind of personal put downs.

My question regarding your use of the word "trolling" was a fair question. The only time I have heard it used is in connection with game fishing, where the lure is attached to a line extended from the back of the boat so that the fish will chase a moving target. Sincerely, I don't know what you were getting at when you suggested that I was trolling. I still don't know what you meant. So, rather than ridicule the question, why not just answer it?

Finally, you chose to ridicule me when I offered to send anyone who asked, an Excel template formula for doing a particular options computation. I never said it was rocket science. I knew how basic it was even before your caustic response. I was just trying to do something for others. How can that be offensive?

Bob
 
QQQQ -

I don't know whether it's your writing style, lack of details or just a CYA mentality, but you are the cause of what you perceive as undue criticism. Here is your prior post:

Quote from exQQQQseme:

Speaking of intrinsic or extrinsic values, did you all know that if you have a collar or reverse collar with the strike prices of the puts and calls at the same amount, that the amount of the aggregate intrinsic value never changes?

Example: Short 1,000 shares of UNDerlying. Long 10 calls and Short 10 Puts, both at $90. No matter what the price of UND, the intrinsic value will always be negative $90,000. Therefore, as long as your net extrinsic values are increasing, you are making money. If they are decreasing, you are loosing money, and you need to look into adjusting your extrinsics.

Bob
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You cite "collars or reverse collars with the same strike prices of the puts and calls at the same amount". Like it or not, as mentioned by others, these are synthetically equal to a conversion and a reversal.

And as mentioned, by MTE "Long call + short put is synthetic stock. So if you short the stock and long the synthetic stock you're flat and are not making any money. The synthetic stock will be above the natural by the cost of carry."

But now, magically, the long puts are for a further out month and you're defending your first statement by dissecting a synthetic calendar spread.

Quote from exQQQQseme:

Also, using the combination where we presently are...that is short 1000, Long 10C and Short 10P, usually the Calls are at a far out month and the short calls are at a short month. And before someone jumps in and tells me, I do realize that at this point, this is a synthetic calendar spread.
Bob
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Ignoring what I think was a typo (I surmise that you meant "puts at a far out month"), if you don't want to learn about synthetics, so be it. But if you post wasn't clear or you accidentally omitted a detail, just own up to it instead of running people in circles. Let readers know whether you want to discuss calendars, collars or conversions/reversals.
 
MTE, if I may, I would like to expand a little bit on my response to you two postings above, in the second paragraph...where I spoke of the synthetic equivalent of a calendar spread. Another difference between this and the actual calendar is that the calendar requires an opening net debit. This one, which opens with a net credit (due to the short stock) is more highly leveraged. Therefore, the cost to carry (exclusive of transactional costs, which apply in both situations) is limited to margin interest. The margin interest is somewhat complicated, hence I will not go into it at this time. But, I will say that the "marginal debt" is net of the cash received for the short put.

Regarding the intrinsic and extrinsic thing, one small thing to mention is that if the stock goes either up or down to the next strike price, the first adjustment which would come to mind would be to adjust the short puts to the price of the stock, because the extrinsic value of an option is always greatest at the money. (Yes, Ursa, this is also very fundamental and basic.)

Bob
 
Quote from exQQQQseme:

MTE, you're right if I were to stop right there. But, I don't. I wait until the stock moves, usually 1 strike price, then I adjust. The profit potential lies with the adjustments, not with just sitting on a present position.

Also, using the combination where we presently are...that is short 1000, Long 10C and Short 10P, usually the Calls are at a far out month and the short calls are at a short month. And before someone jumps in and tells me, I do realize that at this point, this is a synthetic calendar spread. One advantage of this over an actual calendar spread is that I can, if I wish, pick up a few additional negative deltas by shorting additional stock. And, I can do it in increments of less than 100 shares. I recognize that this is a small advantage, nevertheless an advantage. Every little bit helps.

If one looks at the common element of all of my postings, I start with shorting stock. Then I build around it. Then I contemplate adjustments and consider my new Greeks on a proforma basis. If I like what I see, I put in an order. If I don't like what I see, I keep tinkering, using a program I subscribe to, until I like what I see. That's what I do, and I'm very happy with the results. So I share, both here and elsewhere.


Bob
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Bob,

As Nikko has already mentioned it above, your intial post said nothing about different expirations or adjustments. Are we supposed to read your mind on this stuff!?
 
MTE, no I don't expect you to read my mind, or anyone else's mind. These public Bulletin Boards are not the most efficient means of communicating. You, Nikko, and I do the best we can in the circumstances. We are all people who are passionate about this subject of options trading. In that connection, even with these communicating limitations, it is wonderful that people from all over the world have a forum such as this where we can express our different opinions, even when we're not perfect when it comes to saying what we mean to say.

My postings are already too wordy. On a subject such as options strategies I don't believe it is possible for one to cover every contingent aspect of everything we say here. So, respectfully I say to you: If something needs clarification, merely ask a question. Hopefully, we can then clarify as quickly and as best we can.

Bob
 
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