I believe this gives a real edge.
Selling puts allows you to cash in premium price on an option and buying it back once the time premium decays.
Losses have a maximum ( as opposed to selling calls, which has no loss limit)
Anyone has experience with this?
Quote from: Bigbroben on Feb 05, 04:56 PM 2021I believe this gives a real edge.
Selling puts allows you to cash in premium price on an option and buying it back once the time premium decays.
Losses have a maximum ( as opposed to selling calls, which has no loss limit)
Anyone has experience with this?
If you sell a put option and it expires in the money, you have given the right for someone sell you something at a higher price than it’s actually worth, ie. you are exposed to the asset price dropping. If this happens then buying it back later will mean the premium you pay goes up because you’re buying an option that’s going further into the money.
True.
People then ''roll'' the option when share price drops lower than expected. So they're actually doing the same thing again: they'll buy back the soon-expiring option and buy a later-expiring option, so they're still grabbing the premium that decays with time.
The only risk of having a strike price higher than share price is to get ''assigned'': the one who bought the options from you forces you to buy the shares at the strike price. That is rather ok cuz you then can just sell them back on the market and be liquid.
Quote from: Bigbroben on Feb 06, 03:44 PM 2021That is rather ok cuz you then can just sell them back on the market and be liquid.
Right, but you’ve made a loss as you’ve bought them for more than they are worth so you lose your edge.
Every naked option position carries risk.
Losses are possible indeed but the fundamentals are better than buying options.
Say a share at 10$.
Sell a put strike 10$ expiring in a month for 1$.
If the share stays at 10$, options worthless. At money from the sale kept.
Opposite: buy a call strike10$ expiring in a month when the share is at 10$ for 1$. Share stays at 10$. You lose 1$.
The point is selling time and volatility whose value decreases with time.
This is the edge.
Quote from: Bigbroben on Feb 06, 08:16 PM 2021Losses are possible indeed but the fundamentals are better than buying options.
Say a share at 10$.
Sell a put strike 10$ expiring in a month for 1$.
If the share stays at 10$, options worthless. At money from the sale kept.
Opposite: buy a call strike10$ expiring in a month when the share is at 10$ for 1$. Share stays at 10$. You lose 1$.
The point is selling time and volatility whose value decreases with time.
This is the edge.
Share price drops to $5, you lose a lot.
Anyway, if you think you have an edge then best of luck. You asked if anyone had any experience of this sort of thing hence why I replied. You can either win or lose on naked positions which for me isn’t an edge.
yeah, thanks for the replies.
But you must reckon one is better off having sold a put at a strike of 10$ than having bought the stock at 10$
If the share drops at 5$, the first loses 4$ but the latter 5$
Quote from: Bigbroben on Feb 07, 09:43 AM 2021But you must reckon one is better off having sold a put at a strike of 10$ than having bought the stock at 10$
If the share drops at 5$, the first loses 4$ but the latter 5$
Yes of course, but you’ve still lost money in these scenarios. Alternatively if the price of the stock goes up above $11 then you pocket the premium but you are worse off than if you just had just bought the stock outright.
Unhedged options are really no different to gambling unless you have good analysis that the stock price is going in a certain direction.
Yes, there is an aspect of skills that comes in, whereas roulette is only luck.
Have you ever done spreads?
Quote from: Bigbroben on Feb 07, 02:56 PM 2021Yes, there is an aspect of skills that comes in, whereas roulette is only luck.
Have you ever done spreads?
I’ve not done any of this personally, I work for companies that do this stuff.