risk, reward, and correlation to the rest of the book is all I care about. I don't look at selling puts as generating income. I look at it as selling risk. So the yield isn't important. If I get a high enough price to justify selling that risk then that's enough.
I think you are just putting us on. There are only 3 reasons to sell puts. Either to generate income, or as a method to buy a stock long at a specific desired price. Or a combination of the two. Hence, given your 4th reason,.... you are clearly just having fun with the board.
You don't think puts (index, single-name) are shorted all the time as a directional vol-bet? If you're right on both you can earn more than the outright.
Not true. He is using short puts as a way to offset other risks in his book. Imagine that you are long volatility/short carry or even simply short the market in other ways, selling puts might be a prudent way to reduce the risk of the overall position.
Aren't you saying it's used to generate income? It's like someone saying I'm selling puts to lower my cost basis. You are lowering your cost basis, by generating income.
No. He is reducing risk by going long delta and short vol. You should try thinking in terms of instantaneous risks, not in terms of terminal payoffs and you will get it.
i'm not a fan of thinking about selling premium in the respect that you first proposed.. i don't think its a coincidence that putmaster joined.. this is just up his ally.. just like atticus and newworld said.. those extrapolated annual returns literally mean nothing relative to the actual value your trading.. i really don't wanna go back and forth about it.. putmaster will though.. its a relative value thing.. you speculating on the relative value of implieds against realized.. i know you know all this stuff.. you don't wanna build an idea that you can rest your hat on that is literally shit... you are selling an implied distribution by selling a put... do you have some edge in what that implied distribution will be? to me your better off selling puts in an index that has richer premium to sell.. if you had a model of how to determine if a put was overvalued , and how much it was overvalued, and how much you would have to risk to extract that value.. then you could think about applying some extrapolation to your earnings possibly... i would say you were going maybe somewhere then.. doing it like your talking doesn't make sense to me at all.. i'm not trying to be harsh about it really... its just werid how many times putmaster has talked about this and how bad of a perspective it is for looking at value in risk premium.. <<< my question is.. why aren't more questions asked about looking for ways to get long vol and uncorrelate there short vol positions.. instead of focusing on selling more premium in a 12 vix environment at all time highs?
Back when I was part of the management of a Pharma company we had three big offices: One in Philadelpha, one in London and one in Paris. The two European offices were at constant war with each other and ocassionaly I would be dispatched to try to get the two to work together. I have a memory of sitting in a street side cafe in Paris with the managers of the two offices trying to get agreement on very basic issues. I never succeeded. There was a good reason: The two cultures were completely incompatible. Their basic ideas of what life, and thus business was all about didn't and couldn't mesh. They didn't speak the same language in a much bigger sense than just vocabulary and grammer. When I saw this video I thought of those Paris street-side meetings: http://www.youtube.com/watch?v=PSEYXWmEse8 There are two completely different basic concepts (goals, strategies) of what trading options is all about represented here and I am amazed that nobody seems to understand what that huge difference is. (hint: what about Theta?)