Whether a stock is trading at its all time high or trend follower is 100% irrelavant in deciding to use put spreads or naked puts unless you can back up what you say with the distribution of returns for those scenarios that you choose. I think you are heading in the direction of mean reversion,but its very unclear as to why you make that statement. As for point two,it appears you are trying to make a distiction between growth and value stocks.Again,naked puts vs spreads is not what the debate should be about.I somewhat understand the framework you operate in.You look at dollars taken in,and pay no regard to delta and gamma.If that works for you,so be it,but that does not imply it is the "correct" method. Point 3 is flawed.You are choosing a specific path,and of course the worst possible scenario for a spread trader.That is OK as it is a wise practice,but again,you simply view this in the "dollars in" format you employ,and that will "force" one to become overleveraged(equal credits) in a dislocation or zero adjustments. Again,at a bare minimum I would look at the greeks to compare apples to apples.I would also ask you if one should choose to operate in your dollars in world,what happens if stocks go to zero. Point 4 is your valid point,and as stated,you are talking leverage or possible max notional one will have to take down.That has nothing to do with the risk of put spreads vs naked puts.Dont confuse the two.Selling a put spread is less risky than selling a naked put.That is a given. You seem to confuse "size" with strategy..
Atticus,if I undertand correctly,you are in favor of selling one month ATM options on singles and conversely buying ATM singles as well? FYI,I respect your opinion and find that "interesting". I tend to look at my delta decay relationship a bit more By and large,my trading(systems and discretionary) cant afford the premium of the ATM strike.
Putmaster,where did you come up with these observations?? I really dont have an axe to grind either way,but your arguments represent knuckleheads not spread traders.. Put spreads are less risky than naked puts.Options 101. Nothing to do with margin requirements.Again,you are talking size,Big Boy And for what it is worth,I will almost guarantee that more money has been lost in the equity markets by naked put sellers than "overleveraged" put spread sellers..
08-28-12 01:43 PM Putmaster,where did you come up with these observations?? I really dont have an axe to grind either way,but your arguments represent knuckleheads not spread traders.. Put spreads are less risky than naked puts.Options 101. Nothing to do with margin requirements.Again,you are talking sixe,Big Boy And for what it is worth,I will almost guarantee that more money has been lost in the equity markets by naked put sellers than "overleveraged" put spread sellers.. ---------------------------------------------------------------------------------- Now i know how the interrogaters felt when they questioned BERNIE MADOFF investment philosophies and his defense of them "Split strike conversion strategy.." cheers john
Now you're talking out of your ass. Naked put sellers have been limited to RegT while spreaders are limited to risk, and in some cases their entire portfolio. You can sell an 8-lot of AAPL Sep 665P with $100k under RegT. You can sell 70 640/660 Sep put spreads. Who will blow-out first under 2 sigmas lower? And since you mentioned it... what the synthetic to Madoff's "split strike conversion"?
that is if you're dumb enough to risk your entire stake on spreads...I can't imagine a spread trader being so dumb... btw....putz master.....using leverage properly and only risking what you have earned (i.e., not your original stake) there is no fucking way naked put selling can even compare to someone that has a consistent debit spread strategy that earns $2 for every $1 bet. you can theoretically grow your account exponentially...operative word being theoretically caveat: i'm referring to debit spreads