Good points. For a newbie starting out in options would you say that spreads are the best way to go rather than just being long?
Yes, but if I am not sure about the direction, and when I think conditions are right, I write calls or puts.
Tao, thanks for posting this research. Goldman laid it out nicely. I would be curious to know how much of those returns come from the interest on 1m treasuries that the collateral is being invested in. If selling 20D puts only resulted in a 5% return, when t 1m was ~4% for at least half of this testing period, then I would assume a good chunk of those gains were from interest alone. Meaning, when you lever up the gains don't increase linearly(and sharp drops dramatically). Would you agree?
This is very similar to the CBOE Put-Write index: https://www.cboe.com/publish/micropdf/CBOE-SP500-One-Week-PutWrite-WPUT-Methodology-Paper.pdf http://www.cboe.com/micro/buywrite/bondarenko-oleg-putwrite-putw-2019.pdf For most of us retails, the result is not worth the effort unless we can automate the trade. If we automate the trade, we might just as well buy the Put-Write index. We want to shoot for outsize returns doing it ourselves . The only way to do it mechanically is through leverage which then leads to blow up. The angle on selectively write is the key to getting an edge. For that it is a very excellent article. Friend who wrote puts for a living for over a decade essentially found his edge in a similar fashion. Regards,
But then again, if you know how to selectively pick up your spots and strikes (based on some suggested fundamentals) then you might as well go out-right for the spot .. better edge there than capping the potential gains..