Anyone selling premium only

Discussion in 'Options' started by optionbull, Feb 9, 2013.

  1. metameta


    This is honestly my favorite strategy.

    I short otm puts on decent companies, KO, WMT, COH, TIF, PEP, PG.

    Its absolutely true that 90% of the time you win.

    The 10% can hurt bad. I know people say what about when you lose? You own KO, WMT, COH, TIF, PEP, PG they all pay above market dividends (especially at low strike price you sold puts at). Unless the person criticizing you knows for sure the above companies are going to zero their argument is poppycock since you can just hold them and/or turn around and sell calls against and collect dividends while you wait.

    I shorted otm put leaps 4 months ago on most of the above during downdrafts and closed 90% of them last month.

    Never seen the market decimate premium the way it did last two months, made $46k fast and now going flat as pancake on positions.

    by far my favorite strategy, wait for any decent companies to miss earnings and short otm puts 1-24 months out, do them in small tranches 30% first day, 10%, etc...i've seen the stocks even decline day after day after initial drop but the vol spike on day one drop juices the premium so high.

    if its just another newbie strategy its the most profitable one i've used.
    #11     Feb 9, 2013
  2. +1
    #12     Feb 9, 2013
  3. Thank you

    do you look at indicies, like QQQ or SPY ? RUT ?
    #13     Feb 9, 2013
  4. metameta


    Yes mostly spy, again, a downdraft in spy would make a good time to sell far otm puts, they seem perpetually overpriced. I mean if you look at some of the strikes on spy put leaps (out as far as dec 2015) and the fact they have bids at spy 100, what is someone hedging with that? the purchaser pays a 33% deductible (150-100) before you lose as put seller.

    Most important thing to remember is low-moderate leverage. Its hard to stick to this because you win a lot until you don't (10%) And keep an eye on notational value of all positions. It may lull you into complacency selling otm puts on all these safe names. You wake up one morning and have $4 million notational against $400,000 suddenly doesn't look so conservative. Granted market has to move down 20% to start to hurt you on strikes but the mark-to-market losses would shock you.

    low to moderate leverage shouldn't go above 45% of margin available in portfolio margin (remember it gives you more if you are spread out so in reg t that is equivalent to 65%).
    #14     Feb 9, 2013

  5. Thanks,

    Anyone broker that supplies the "tools" that will help one beeter ? TOS I think seems ok

    This strategy can be done small and scale up no problem as far as I can see, so even if I do it with couple contracts on QQQ for example ... I can determine how much money I need based on as you say 45 % portfolio margin
    #15     Feb 9, 2013
  6. hoop121


    you could always track a specific stock or indices to see how it ranges from month to month and then sell premium at key support levels. if it breaks the support level then stop yourself out and wait for the next one.

    the more picky you are with where you sell premium the better your return will be. some people think they have to have a trade on at all times, but a 10-15% return per year only needs a few trades per year if you're smart where you put them on and know where to get out if you're wrong.

    and just remember, there will ALWAYS be a time when you are wrong.
    #16     Feb 9, 2013
  7. hoop121


    also, right now is a great time to purchase tail risk puts. once you have that protection in place it makes sleeping at night much easier when you are a premium seller
    #17     Feb 9, 2013

  8. so you suggest selling premium as discussed above with a 90 percent or so probability finishing OTM

    but buy a teenie in case event ? not sure I follow you because this is about selling premium right ?

    #18     Feb 9, 2013
  9. hoop121


    i never said to sell 90% probability OTM. i thought we were talking about selling premium, but nothing more specific than that?

    your original post said you were looking for other traders who sold premium and understood the risks. i'm simply putting another type of way of doing it out there.

    it's been 5 years since a major correction and right now premium is at an extreme discount. even Talib himself said that tail risk is already under-priced, so right now is an ideal time to purchase some.

    it's simply just another way to hedge the premium you are collecting. just like a put spread, just like an IC, etc.
    #19     Feb 9, 2013
  10. metameta


    right now is not an ideal time to implement a put selling strategy since volatility is so low. wait for a more ideal time, debt ceiling, etc...

    at low-moderate leverage you should expect around 10% per year with this strategy. if you leverage up more but that increases cat loss risk.

    in an environment where savings acct pays 1%, 10 year tsy pays 2%, what is wrong with 10%.

    there is risk in everything but the put buyers pay the first 15%-20% of the loss. (i.e. sell 40 put strike on 50 stock).

    you can feel especially confident the market is about to turn up when dr doom goes on tv to say although we are down 10% another 20% is right around the corner, or if they start talking about the death cross and put pictures of spiders on front page of cnbc. sell all the premium you can at that point.

    if it feels uncomfortable at the time it usually is the appropriate strategy. if it feels too easy time to go flat.
    #20     Feb 9, 2013