selling put options

[Atlantic Drifter]

If you were a member of the 'dollar cost averaging' world, then you could also write covered straddles (preferably some way into the future). The calls on exercise would have provided you with a guaranteed return (albeit possibly with an associated opportunity loss). The puts would provide you with shares discounted by whatever your income from the straddle was minus any share price downside.

An example from today prices on Hilton Group plc. (MyTrack)
Stock 196
Nov 200 Calls 10p
Nov 200 Puts 15.5p
Days to live 105

results (ignoring transaction costs etc.)
Exercised calls - 4p profit/share +25.5p premia = 13%
Exercised puts - 200p/share - 25.5p premia = 11% discount to your first tranch purchae price.

provisos:
1) Of course, Hilton could fall below 175, which would give the strategy a net loss unless you repeat it. You can write calls on the larger tranch though.
2) During normal market movement, you could trade out of the straddles as exercise day approaches.



For those who are 'savvy', I am aware that the above is a touch simplified - it is just an illustration. :cheesy:


regards etc.

AD

 

[Atlantic Drifter]

If you were a member of the 'dollar cost averaging' world, then you could also write covered straddles (preferably some way into the future). The calls on exercise would have provided you with a guaranteed return (albeit possibly with an associated opportunity loss). The puts would provide you with shares discounted by whatever your income from the straddle was minus any share price downside.

An example from today prices on Hilton Group plc. (MyTrack)
Stock 196
Nov 200 Calls 10p
Nov 200 Puts 15.5p
Days to live 105

results (ignoring transaction costs etc.)
Exercised calls - 4p profit/share +25.5p premia = 13%
Exercised puts - 200p/share - 25.5p premia = 11% discount to your first tranch purchae price.

provisos:
1) Of course, Hilton could fall below 175, which would give the strategy a net loss unless you repeat it. You can write calls on the larger tranch though.
2) During normal market movement, you could trade out of the straddles as exercise day approaches.



For those who are 'savvy', I am aware that the above is a touch simplified - it is just an illustration. :cheesy:


regards etc.

AD

 

[waqr]

Sounds like the "dollar cost averaging" world is full of fruitcakes

 

[Atlantic Drifter]

Don't look too closely at how your pension is invested then...

 

[waqr]

Your numbers are wrong.............if the price is below 200 at expiry you must buy a further no. of shares equivalent to the no. you bought initially to cover the calls. So if you had done 1 lot then you are now the proud owner of 2000 shares at an avg price of 198.

The strategy moves into the red at 185, not 175

 

[Atlantic Drifter]

Yes. Forgot to divide the premium thru the first 1000 shares too. Silly mistake. For simplified, read 'a bit off the cuff'. Better in most cases to trade out of the position before expiration though, unless the objective is position building.

 

[Hittfeld]

Credit Spreads

Hi Osho67 (and everybody else), sorry for not answering earlier:

Unfortunately my four-linqual-swiss keyboard hasn`t got one important key - neither Pounds Sterling nor Guinees. But still 22 pounds isn`t a lot, it `s too much. It would mean, that my preferred strategies (2 spreads a time) would cost min 88 Pounds (4 legs-Iron Condor) up to 132 Pounds ( 4 legs - 2 pre expiry closes -- Standard Condor). Too much. Or are you banking with some Zurich gnomes??

With IB its 4 - 6 $, a bit more for Eurex and Pounds 1.70 for London Options. All per 1 contract, which should be enough for a start. May be your quotation was the minimum fee of a broker. so it would cover 3 or 5 instead of 1 contract only. Acceptable.

The credit generated depends on time, underlying and volatility levels -strikes being relatively equidistant from present market price.

Selecting rather conservative underlyings (undervalued SP100 constituents or Dogs of Dow) will give you on frontmonth between 1.5 and 2.5 % per month, with increased volatility even more. Doing 2 spreads at the same time ( butterflies or condors of diverse variations) will double the returns -but not the risk.

With the additional compounding effect , prudent action has shown to provide 30 - 60 % p.a. on margin at risk as an achievable goal with stocks as underlying. Indices grant lesser returns - albeit often counteracted by lower margin requirements due to lower risk.

RUT is the U.S. Russel 2000 index with IWM and others as corresponding ETF.

Kind regards

Hittfeld

P.S. This post was written for your entertainement only. US lawyers strictly forbidden.

 

[rdellery]

Does anyone sell daily options on indices? Is there money to be made in it?

I'm a beginner and my aim is to make a steady stream of income so that I can give up my day job and trade full time. Any good ideas out there?

 

[anley]

rdellery

My advice is stick in your day job and forget about 'making a steady income' on trading (especially selling options) because for 95% this is just not possible. Nothing personal buddy but I think you might have been influenced by the likes of Darren Winters and their ilk, because they all like to give the impression that anyone can 'live the dream'. Of course one can get their blueprint by going on one of their scam courses.

On a separate topic why has nobody mentioned option volatility in this thread because with it being at 10 year lows anyone aggressively selling premium here is likely to pay dearly at some stage over the next year. In my mind the only thing to do with options right now is to buy long dated out of the money calls/puts.

 

[momoney]

Folks, selling of dailly options is tricky business. An 'at the money' straddle will win you 60 points of premium roughly on the dow. Adjusting the hedges will prove too expensive.
Selling protection on the index wont give you more then 10 points of premium(say 60 points away).

Very little room to get it right, as hard hedges will punish you when reversals occur, (a point well made earlier in the thread)

Soft hedges will be better than hard ones (hedge with other options rather than futures)

Daily options are best used as leverage tool, to take directional view.

 

[reactor]

Here's an interesting strategy I read.

This is for the really risk adverse.

1. Put your cash in a high interest rate account.

2. Use the interest gained to either buy a bull spread with calls or a bear spread with puts that are out of the money, depending on your directional view.

3. Exercise if in the money, or let the strategy expire.

4. Your loss is limited to the interest you gained from your high interest account.

And now for the small print. You won't gain interest on the margin deposit in order to trade the options.

If you have any change left over you can play the national lottery once every week until you have enough interest earned to do it all again!

 

[Rainmaker]

rdellery

My advice is stick in your day job and forget about 'making a steady income' on trading (especially selling options) because for 95% this is just not possible. Nothing personal buddy but I think you might have been influenced by the likes of Darren Winters and their ilk, because they all like to give the impression that anyone can 'live the dream'. Of course one can get their blueprint by going on one of their scam courses.

On a separate topic why has nobody mentioned option volatility in this thread because with it being at 10 year lows anyone aggressively selling premium here is likely to pay dearly at some stage over the next year. In my mind the only thing to do with options right now is to buy long dated out of the money calls/puts.

Agree absolutely with every word!

 

[gullible]

Osho67,

Being very new to investment in indices and fX, cannot find the website now but summary of what i read. May be total rubbish but here goes:-

Write a 3 month European style put option on FTSE at below at least 1000 points from the current market price

Collect a premium of £1000

Margin required to maintain the position (comfortably) £5000

FTSE stays at or near the market price at the time of writing put option, you keep £1000

FTSE moves against you, the value of the premium will go down. You can than take a view as to if its is worth closing your position by buying back the put option.
You should be able to at worst case b/e.

* If there is a sudden drop of say 500-800 points you could be in big trouble. Like loosing possible £10000.*

 

[RogerM]

gullible - you'll never get £1000 for a put 1000pts OTM with 3 months to run unless Implied Volatility (IV) is a lot higher than it is at the moment - like in the stratosphere. Current IV for deep OTM FTSE100 puts is about 20%. It would need to rise to about 48% for the price to be100.

For example, the Dec 3475 put is currently priced at 2.5 for the bid - just £25 per contract. To get £100 you need to look at the 3775 Dec puts which are 700 points OTM. You get £1,000 by selling the Dec ATM put i.e. the 4475 put, currently priced at 102.5. Not sure I want to sell an ATM put with 3 .5 months to run - particularly after the 200 point run-up we've had in the market over the last couple of weeks. I'd be more inclined to be selling calls from here, but ideally after IV has perked up a bit.

p.s. did you know that the word "gullible" doesn't appear in the English dictionary?

 

[gullible]

gullible - you'll never get £1000 for a put 1000pts OTM with 3 months to run unless Implied Volatility (IV) is a lot higher than it is at the moment - like in the stratosphere. Current IV for deep OTM FTSE100 puts is about 20%. It would need to rise to about 48% for the price to be100.

For example, the Dec 3475 put is currently priced at 2.5 for the bid - just £25 per contract. To get £100 you need to look at the 3775 Dec puts which are 700 points OTM. You get £1,000 by selling the Dec ATM put i.e. the 4475 put, currently priced at 102.5. Not sure I want to sell an ATM put with 3 .5 months to run - particularly after the 200 point run-up we've had in the market over the last couple of weeks. I'd be more inclined to be selling calls from here, but ideally after IV has perked up a bit.

p.s. did you know that the word "gullible" doesn't appear in the English dictionary?

Hi RogerM,

Thank you for the response- much appreciated. I thought what I read/ misunderstood was to good to be true. Good job I have not yet jumped into options.

Roger from memory what I seemed to have read is that you can sell 10lots of put option at a 10p premium, and that equated to £1000?. It seems logical to assume that 10 X 10 - £100., perhaps 'lots' has a sepcific meaning?

Something else I have learnt 'gullible' not in English dictionary. What is the orgin of this word?

many thanks once again for opening my eyes on put options.


best regards




Gullible

 

[RogerM]

Hi RogerM,
Roger from memory what I seemed to have read is that you can sell 10lots of put option at a 10p premium, and that equated to £1000?. It seems logical to assume that 10 X 10 - £100., perhaps 'lots' has a sepcific meaning?

Gullible

"Lot" = contract. So 10 lots means 10 contracts. 1 contract = £10 per FTSE point, so 10 contracts = £100 per point.

Something else I have learnt 'gullible' not in English dictionary. What is the orgin of this word?

Hmmm! I will really have to leave you to work the implications of that one out for yourself!

 

[tcksee]

Hello OSH67
Came across your thread selling puts, I have also made money this way but i have been caught out
a number of times,you must always have funds to back you up..
could you up date us on your progress trust it is good
best wishes
Tom

 

[anley]

Also remember when you're dealing in options the people on the other side of the trade are some of the sharpest and most brilliant trading operators around.

Perhaps it's a little bit like a Gladiator fight, you against seasoned, mean professionals that have arms bigger than your thighs! Oh, and also take great pleasure from maiming and killing people!!!!

In my experience the only people who make good money in options overtime are the market makers, and the rest (including myself) who think they can compete are just dreamers.

Stick to longer term investing in stocks and don't use much/any leverage, then you should be ok.

 

[Robertral]

Also remember when you're dealing in options the people on the other side of the trade are some of the sharpest and most brilliant trading operators around.

Perhaps it's a little bit like a Gladiator fight, you against seasoned, mean professionals that have arms bigger than your thighs! Oh, and also take great pleasure from maiming and killing people!!!!

In my experience the only people who make good money in options overtime are the market makers, and the rest (including myself) who think they can compete are just dreamers.

Stick to longer term investing in stocks and don't use much/any leverage, then you should be ok.

most people sell DOTM naked puts or naked call and think they are god cause they always make cash, but one day the market will gap massivley and everyone will be F*cked.......at least protect urselfs with some futures.........my advice is stress test ur portfolio with extreme values, and not just ones that suit ur book.......see how much u can loose with a market move, with both S and vol.......best of luck....

 

[osho67]

I sell naked puts on us sahares with IB all the time. I only do this for one month expiry and most of them


expire worthless. If I get assigned, I start writing covered call on them. Hopefully it works all right till now and monthly I have made 20-25% (annualised) .