<<< For the covered call sellers. I know its another popular strategy, buy/write but as you know this has the same risk as selling puts naked. This is another strategy that can wipe you out in a bear market. >>> It isn't stock dropping that wipes investors out in a bear market. it's being over leveraged that does that. A credit spread may be considered a hedged position, but if you over leverage them, they can wipe you out quicker than selling puts naked, as you can potentially use more leverage with spreads than selling puts naked. (And most spread investors do) I would never recommend anyone enter the market naked. But it's excessive leverage that kills them, not being naked. Particularly if you are over leveraged with a pending expiration date of a spread hanging over you. The other thing that kills investors more than being naked, is not being "picky" about "price selection". Buying stocks high, because the "current story" is good, and you feel protected (hedged), so you buy higher than you normally might. Bottom line,.... being hedged can cause investors to over leverage and buy high. And combined with a looming option expiration date, that is a recipe for disaster. However, being naked is also a recipe for disaster, if you over leverage and buy high. But because you are not hedged, chances are you will not be on as much leverage, and not buy as high via a naked put, as someone who feels that false sense of security of being protected in a spread. Hence the reason I discussed buy/write as a potential strategy to consider. You are unlikely to over leverage,... you are unlikely to buy high since you get to select your otm price, and you are putting up the cash upfront. And if the stock is down on expiration day, you can consider buying and waiting for a recovery,... while you sell calls and/or collect dividends. You don't need to fear the ticking clock of option expiration day looming. TIME, is not as big a concern to a buy/write investor, as it is for a hedged, but over leveraged spread investor, who may have bought at a higher price than he normally would have, because he was hedged and felt protected. I'll point to DanShirley as an example.
ok ok ok ... stick to one way of calling it... Naked means leveraged shorting puts on margin.... Cash secured means something different... you mix the two alot.. no big deal though... Buy writes are a limited profit profile.. you often time cap the long runs in the market as a result of your "capping" of your profit..
Personally, I consider a naked put as simply being obligated to buy if stock drops to or below a particular strike, while only putting up a small % of cash as collateral. Being leveraged is an entirely different issue. Leveraged (naked put), is being obligated to buy more shares than you have cash for. I may sell seven naked puts, but only be potentially leveraged on the 8th one and beyond. Cash secured puts, is simply a reflection of.... "account status". That being, you have not been given permission to potentially buy more shares than you have cash for. I suppose I'll find out in the morning if I'm correct or not.
This is what I always thought it meant, but I am totally new to options and I suppose as I read more the terminology will become more familiar. Good discussions certainly help the learning process.
This is really off topic, but since i decided to email it to some folks, I thought i'd share it here too. Best vocal and most inspiring version of the song I ever herd. And I don't even understand half of it. You will either hate it or love it. There is no gap between the bid/ask. http://www.youtube.com/watch?v=uSc_MXC5hsU&feature=related
No matter what language the song is sung in, nobody has any idea what the song is about. And yet, because of the melody, it's a great song. Do you know what it's about? I'd love to know. Even when i read the words, it makes no sense. Am I missing something? Personally I find this is the best vocal version of the song. I prefer listening to it with my eyes closed,... except for that pretty girl dressed in black. I keep peaking when she is singing.
Ok, to your point, if I had to choose, I'd rather sell a cash secured put over selling multiple bull put spreads. Its still a lousy trade. Well, sooner or later it will make you feel pretty lousy because you will lose all those tiny gains and a lot more eventually. Buy/Write or selling covered calls is a terrible way to trade and so dangerous. What are covered call sellers going to do when the next bear market comes and they are exposed. Great way to financial ruin. At least collar the stock in some fashion. I know its hard to believe in the times we are living with all the stimulus all around the world, but the next bear market WILL come and devastate credit spreads sellers, put sellers, buy/write or covered call sellers.... Don't be in that crowd. Its the wrong trade and especially in this low vol environment.