Selling put is a bullish bet so he should be profitable in a general bull market. He bought more OTM puts as protection which is very smart, it protected him from those down months.
Oh, that's right. So he been selling put, so he been betting on a bull market. Just check the SP500 chart, it's sort of been rising last year until recently, it fell substantially. OK, I don't actually trade stocks. I trade currencies and commodities. I thought stocks comove with other financial assets, maybe not in the longer term time frames...
Maybe you can explain his 30%-40% total return. Take AAPL as an example, underlying $170, sold put @ $165 paid $.51, for 6 days expiration, so he bought $155 for protection costing $.07, 1 contract paid ~$35 net of slippage and commission, he tied up $17,000. Let's say he did 52 deal a year (weekly with one week to expiry) and they were all winners, that would be ~11% on capital, not counting commissions and slippage. He could go on margin but then the risk profile would be very different.
See my post asking destriero. I think he used leverage and you know what happen if you use leverage. Remember Karen, LTCM, optionstrader.com....
I mean if you survived the last year with that type of strategy you must be doing something right. I would say if you did well from 2009-2016 then it was luck of being in the right market but not the last 2 years
Yes, the math is fiction, but your math is off as well. The AAPL trade would require a $956 debit + comms. A 4.6% return on debit.
I am using margin. Multiplying out this deal as a hypothetical though, I see the risk as $10/share, so $1k, excluding costs. Let’s multiply that by say 15x stocks = $15k. I do 10-20 week, depending on whether I can find stocks where the 2SD is near a support level. So, week by week, I’m risking say $15k on a current NLV of $90k. The risk then is not so much huge crashes but rather multiple of them happening throughout the year. Sustained ~5% week on week declines (like Dec) are actually fine. I guess this works with the right market vol characteristics and not others. Just so happens that the past 2 years have been fine. To state the blatently obvious, this seems to work only with the right stock selection, where there is support. In the aapl example that $0.50 put is an arbitrary price. Arguably whether there’s support or not shouldn’t make a difference - the price should reflect odds of hitting the first put. Perhaps I should run a backtest picking a random set of stocks 2SD out and see if there’s a difference. Appreciate the feedback though.