selling put options

[osho67]

Hittfeld

Thanks for the idea of Dogs of Dow . I will look into this today when market opens.

 

[osho67]

Hittfeld mentioned in his post 47 that butterflies or condors of diverse variations will double the returns but not the risk. .I would like to understand this with some examples. Any explanations would be much appreciated. Thanks so much.

This Friday all US options for Oct will expire and I hope to give a short summary of my profits. - particularly profits that have resulted from selling naked puts.

 

[tradermic]

This Friday all US options for Oct will expire and I hope to give a short summary of my profits. - particularly profits that have resulted from selling naked puts.

Interested to know if you are still in the game selling naked puts, and selling calls against it if assigned?

 

[peter66]

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) .

I am interested in your way, if possible can you give more details such as how do you choose the stocks, how far away your strike price is from the market? et al.
thanks

 

[tripleogstar]

don't understand how u can sell hedged calls and expect to offset the loss on the short puts, because you would have to sell the calls in a later expiry. If your short a put and its close to the money you will not know until the last second of trading whether or not your going to be assigned on those puts and therefore your short hedged call strategy will have to be in a greater expiry and there you are taking on a different risk. In fact your getting synthetically short the put by selling the call and buying the underlying. So I do not see how this is some wonderful strategy, it just seems random. Selling puts is fine, until the market craps out and your losses are enormous, but ppl take whatever risks they want who am I to say anything

 

[Even Steven]

wow, not too much recent interest in selling puts. only 2 posts in 2011, then prior posts all the way back to 2004!

so here goes an attempt to re-start this thread.

I am a short strangle trader, mostly on US indexes like SPX, RUT, and the "minis" like DIA, IWM, SPY, QQQ.

Doing fine, I sell deep OTM strikes, typically open position with about 35 - 45 days to expiry.

When I have been burned (never catastrophically because I WILL close position once the opening premium received has doubled against me) its always been because I was chasing a 5 - 10% return, and was therefore trading a stock, and a too volatile one at that (like FSLR, NFLX, GMCR).

Now wiser and still financially in the game, I will at least do an iron condor if I am selling premium on an equity, and sometines I do convert my short strangles into condors if I want to stay in the trade, but don't like the way the underlying is moving. Also, I never held a short strangle on a stock that was going through earnings, but found that sellling post-earnings (about 3 to 4 days post-earnings) worked well for me, despite the "vol crush" post-earnings.

I also did best when I scaled in, so if I wanted a 2% return per month, I'd look to sell on 3 separate occassions, about a week apart, this allowed me to position better, rather than trying for all that premium at one time.

Vol levels should be rising this year, and market has had a huge run, so more likely to be a consolidating sideways market now, well-suited for premium sellers.

interested to hear about the techniques and software, favorite websites, of other option sellers.

A final word on the "huge unhedged risk" we option sellers are always hearing about. Risk is mitigated by distant strikes, reasonable profit expectations, selling in "waves" not all at once, and iron discipline in exiting positions that go against you. Also, safest to mostly sell premium on indexes/ETFs, and now and then on equities you know well (and aren't too volatile, or about to go through earnings).

If you do this right making 18 - 24% a year is possible, and you CAN avoid the "black swan" event that all short sellers rightly fear.

 

[billybuster]

Even Steven, what's a good broker to use for options on indices ? I use IB but they seem to require a huge margin when selling options - enough to cover a 30% swing in underlying.

wow, not too much recent interest in selling puts. only 2 posts in 2011, then prior posts all the way back to 2004!

so here goes an attempt to re-start this thread.

I am a short strangle trader, mostly on US indexes like SPX, RUT, and the "minis" like DIA, IWM, SPY, QQQ.

 

[Even Steven]

billybuster, I am also using IB to sell puts (and calls).
since I usually always sell a credit spread, whether a put or call spread (mostly both, ie. an iron condor), I cap/define my margin expense. Yeah, selling naked takes a lot more margin, which is why I stopped doing it. And IB will only charge margin against one of the condor vertical spreads, so the other side is "free".

Cheers.

 

[Trade4_Freedom]

billybuster, I am also using IB to sell puts (and calls).
since I usually always sell a credit spread, whether a put or call spread (mostly both, ie. an iron condor), I cap/define my margin expense. Yeah, selling naked takes a lot more margin, which is why I stopped doing it. And IB will only charge margin against one of the condor vertical spreads, so the other side is "free".

Cheers.

Is there a video on how this is done on IB?

 

[Mr. Crabs]

I am starting this new thread in the hope that there will be valuable comments from experienced traders on options.

In 2002 in about sept time i started to sell put options in uk shares. The option i would write will be well below the price of the share. This reduces the risk but gives lower premiums as income. But this will not require much collateral with the broker. I will leave the premium income with the broker building a good cash sum. In 2002/03 I made about 8k . here was only one share I had to buy which was abbey national and immediately i wrote a call option reducing my paper loss.

This year i have made about 4k and i have not faced any exercises.

My thought is why more people are not using this method to generate premium income. There is a big risk if there is a collapse in market . To lower the risk i pick the price well below the current price of the share.

All comments much appreciated. I think i am making some free money for not much investment. Are there other people following this strategy. I am keen to learn more before exposing myself with larger no of contracts.

Thanks

There seems to be a lot of preparation for a mod-term market crash, after the panic materializes it would be wise to start loading up put options on the most volatile blue-chip companies in America, you could make some serious $$$ buying puts out of the money if you play it right.

 

[Even Steven]

Is there a video on how this is done on IB?

not really a video, although there are many recorded webinars on IB, including OptionTrader module.

here is a workaround.
prepare to sell a credit spread (either call or put), then right-click, check Margin Impact. Record this number.

then cancel this trade.

then prepare to sell the iron condor, using the same credit spread as before, but adding the other side. R-click, check Margin Impact. You will see that the margin expense is the same for the entire condor, as it was for just one of the credit spreads, so the second credit spread is free of any margin impact.

 

[Trade4_Freedom]

not really a video, although there are many recorded webinars on IB, including OptionTrader module.

here is a workaround.
prepare to sell a credit spread (either call or put), then right-click, check Margin Impact. Record this number.

then cancel this trade.

then prepare to sell the iron condor, using the same credit spread as before, but adding the other side. R-click, check Margin Impact. You will see that the margin expense is the same for the entire condor, as it was for just one of the credit spreads, so the second credit spread is free of any margin impact.

Actually I figured it out, you can go on optiontrader ==> Combination ==> there, you can individual select your iron condor positions and it will all be set up as one trade, you can also add bracket order for this which makes doing this so much easier.

 

[Even Steven]

Actually I figured it out, you can go on optiontrader ==> Combination ==> there, you can individual select your iron condor positions and it will all be set up as one trade, you can also add bracket order for this which makes doing this so much easier.

yeah, I do enter the trade through the Combo button. But I enter from the main TWS window, and have OptionTrader open on a second monitor. Reason for this is I like to save the Order entry line after the transaction, because then I can close the condor with one command, but I also like to see the overall condor price, versus the net initial credit, on one line, rather than the prices of the 4 legs individually, which I do have next to the underlying on a separate page.

weird thing, is that even during market hours, I have to prepare to sell the condor to get the current quote, it doesn't show on its own, the overall price.

I haven't fooled with bracket orders yet, love the low commissions on IB! I know TOS is powerful options software, but the prices for a trader who just trades a few contracts at a time is too high vs IB.