Good point profitTakgFool... However, if only once since 1998 would we lose, then that helps to validate the potential power of this system. Losing once every seven years is a great win ratio. I'll take that every time. The loss would only set me back the equivalent of only 6 - 8 premiums at the most. Over the seven year span I would have collected one premium (assuming only 1 contract sold) per month for a total of 84 premiums. Walt Walt
Walt -- selling 5% otm XYZ at $100 a share at 30% vol reflects a 1.50 call. Let's assume you trade cash-secured and allocate $10,000 each month per call. HTF am I getting rich on a max-gain of 18% per annum? Please don't even consider compounding that return.
Hi Atticus, I would structure my transaction differently. I would sell ATM or even just ITM after a big upswing & it appears that the stock or index is overbought. I would seek an IV of at least 45 or so, preferably with a 30 day expiration. The premium in such a scenario as this would yield about 15% of my margin requirement for the 30 day period. Walt
Very few people - if any - can consistently call the top or bottom, in this case you are trying to catch the top.
So, you'd feel comfortable selling 6 calls per $10k in equity? Please produce one mega-cap that fulfills your criteria with a 45% vol. So you're stating that GE or MSFT see large increases in vol on 10% moves? It seems as though there is no end to your manufactured facts. More often than not, vols decline on large moves in the large caps as the result of institutional call selling. I could elaborate, but there is little to be gained. You'll simply come back with some fiction.
I'm really not trying to catch the top, in as much as I'm utilzing the martingale to protect the fact that I probably did not catch the top. After the option doubles in value against me (with 1 contract). Then I would double up (i.e. 2 contracts) with an additional ATM sell. Walt
But you have to catch the top, if you don't then you could be screwed selling ITM/ATM call options. You would have sell the OTM options with the low premiums. When you get down to the math you will find there is no free lunch.
Doesnt that require you to have a LOT of cash for the margin to naked short and then double down? I would think selling otm call spread be a better alternative, everything else stays the same (ie: try to sell after a big move up etc..) why take on such risk? selling atm naked calls. EDIT: since we on the same topic, do you guys think below will work? 1) sell otm(both legs) strangle 2) then at the same time place 2 gtc buy to cover limit orders 1 for each leg when underlying = call/put strike price basically you are still unprotected against afterhour movements/gaps, but should be safe during market hours? would this work long term
Resp went up 30% over night. How do you handle that if you are short a boat load? Buyouts kill you and you never know when they coming. John