I disagree. To see why letme consider the case of zero interest, no carry, same vol. across all strikes. We have these observations: 1. The expected payoff of the call buyer is the same as the expected payoff of the call seller for the call strike. 2. Now by symmetry, the expected payoff of the seller of the OTM call will be the same as the expected payoff of the OTM put seller. 3. Combining 1. and 2. we have: The expected payoff of the OTM call buyer is equal to the expect payoff of the OTM put seller. Therefore, over N trials, as specified in my note (read it below), buying the OTM calls or selling the OTM puts are the same thing under the assumptions above. What OptionsCoach seem to see is the difference between the two at a given trial. (One has to look at the war, not at individual battles). They may appear as "oranges and apples" for a given trade outcome, but as a trading strategy they are not different over N trials, as otherwise pricing will be incorrect. Now given my comments, which implementation should one recommend to a beginner and why: 1. or 2. (or other)?
Yes I agree with you. However, the OP stated that the fund made 100% returns a year. I think to make those kind of returns, you need to be quite highly leveraged if you're selling naked options. Could you elaborate on what is meant by a "sonsecutive capture of 3% of the stock price regardlss of where it's tradng?" I don't quite understand this part. I think the OP stated that the fund manager said something like a losing month not being a problem, if he took a loss in one month, he'd roll it out to a further out month. I may be wrong on this, but the understanding I had was that he was telling him he can't lose trading this way, as he'd just roll the "paperloss" to the next month. My point was in order to do this, you either need to increase your size, or go much closer to the money.
I don't know exactly what they were doing, so it's really speculation on my part. My guess is they were rolling the puts over every month, but not increasing the total equiv SPY deltas from the previous month. They may have maintained a constant 2% OTM strike. Looking back on some others posts from the OP, it was stated there was a highish 200 contracts sold per $1mm, but now is at a 100 contract clip per $200, which still indicates some leverage. And you are correct, that a 100% per year return absolutely reflects an unacceptable level of leverage. But don't equate selling naked with unacceptable risk.
if you want to make a decent return by selling premium, you have to be leveraged. the return from selling cash secured options is so miniscule, it's the leverage that makes it profitable.
It's certainly more than miniscule if you are not leveraged (cash deposit to fully cover a possible assignment). There's about 2% premium for the next 4 weeks until the Sept expiry for SPY options, which is not out of the average range for the long term.
I meant to say "but now is at a 100 contract clip per $1mm, which still indicates some leverage" $200 would have been Niedderhoffer-esque!
I didn't read every post on this thread; but got the main points. Seems to me selling or buying verticals (buy one/sell one), in terms of risk/reward, is so much more superior, than selling naked calls or naked puts. There is a little less reward on a vertical; but the reduction of risk relative to naked sales is exponential.