I think stocks may go down big, so I am SELLING PUTS!

Discussion in 'Trading' started by crgarcia, Jan 4, 2010.

  1. It may sound counterintuitive.

    Selling puts if you think markets will go down?

    A Warren Buffett style strategy.

    I'm selling deep OTM puts at least 30%, preferably 50%, with at least one year to expiration.

    Only on good indices like the Dow Jones, or good reputable bluechips.

    Only two things can happen:

    A. The markets don't go down as much:
    I keep the premium.

    B. Markets go down big, I get assigned, so I am happy to own DIA shares at about half the current price, even if they go down still more (temporarily).
    If stocks go down, I can buy more DIA shares for the same money so I get better dividend yields.
  2. you're a genius

    selling naked puts is the road to salvation,

    as the history of wall street have told us many times

  3. Vix is at a 15 month low. You are collecting very low premiums considering the capital you will be tying up for the next 12 months. Why not wait until VOL picks up and collect a little more premium for your efforts?
  4. sjfan


    crgarcia fails again.

    the premium you'll get on your puts will be so tiny so as to yield next to nothing on your capital at risk (tied to your maintenance margin).

    if you are right, the stock drops but recovers before the year is over, you'll be right on your view, but made nothing except a tiny bit of premium.

    If you want to buy the index cheap, why not just average in on the way down? you essentially locked yourself into a very long term limit order for very little additional pnl in the form of premium.

    I predict you'll never revisit this post again, must like you never visit your other "shock" posts once someone point out your foolishness

  5. have you considered some of 'other' things that ALSO can happen? such as market goes up?
  6. Then I keep the premium.
    I am just NOT buying this overrun overbought market, with banks returning TARP funds.

    I was thinking on going to Bonds.
    So why not buy T-Bonds get some (modest) interests:
    REAL money you can spend.
    And collect some premium additional to the bond' interests?
  7. Warren's puts can only be exercised at expiration and they don't expire until 2019 at the earliest. A good chance he'll either be:
    A) Dead or
    B) Ravaged by dementia

    In neither case will he need to deal with the results.
  8. you should sell 5000 contracts of the dec 11 25 strike spy option for 8 cents

    That is 40 Grand risk free profits.

    no way S&P will go to 250 in dec 2011
  9. 1) If you're eating a chicken salad sandwich, as Buffett is rumored to enjoy, do you imagine yourself being like him?
    2) (temporarily), sure! Only "good" things will happen to your position.
    3) There won't be any dividends in the scenario that you imagine. :mad:
  10. l2tradr


    Your return on investment is nothing. Margin requirement is what, just over 3 mil? 40k/3mil is just over 0.65% annual return
    #10     Jan 4, 2010