sell put on stock

Discussion in 'Options' started by light12, Jan 24, 2018.

  1. light12

    light12

    does selling one month atm or itm put and hold on amazon or apple stocks outperform of buying the stock itself historically ? and what are the cons of selling put ever since drawdowns happen , i mean margin nd liquidation and all of that
    and i cant tell the difference if its ITM OTM ATM any tips on that too? im still figuring out
     
  2. Robert Morse

    Robert Morse Sponsor

    Selling the naked put is similar is risk/reward to a buy write. I have no data to show you, but based on the performance of those two symbols, I would think the limited profit and high margin of the naked put would not have been a better investment overtime. That would also depend on the time period.

    I'm not a fan of the buy write or naked ATM or ITM put. If I'm going to be a stock picker and have the down side risk, I don't want to limit my upside.
     
  3. zdreg

    zdreg

    correct.
     
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  4. ironchef

    ironchef

    Short answer, no.

    Whether you will profit from a simple option (long or short an option, not combination of options) depends on how accurate is your opinion on the underlying's movement in direction and magnitude. In general the market is efficient so if you mechanically sell or buy options, you will net zero - commissions/slippages. In other words, you won't make money in the long run.

    Selling puts is mildly bullish, selling calls is mildly bearish. Buying calls highly bullish and buying puts highly bearish. If your opinions are correct, it is like printing money. As for ITM, ATM, OTM, it depends on your risk tolerance.:D

    I am just a beginner so, this is a very simple (and perhaps incorrect) mom and pop retail trader's view.

    Good luck and best wishes to you.
     
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  5. zdreg

    zdreg

    it is all about greed. newcomers fool themselves that the premium received is their money without risk attached. then next, e.g. a put is sold, there is unexpected bad news, the stock is down e.g. 30% plus and the spread between bid and ask on the put widens etc. the money pocketed on selling premium has now turned into a major loss.
     
    Last edited: Jan 24, 2018
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  6. light12

    light12

    in this article i found the image that compare strategies and i was think if its works same on stocks too
    so im not sure how accurate it is and how it works when crash happen
     
  7. light12

    light12

    and this image which shows there is not much difference in group of strategies with holding benchmark really
     
  8. spindr0

    spindr0

    With an ATM short put, at best you keep the premium but you do not participate to the upside (unless assigned and you become a buy & hoper). A good example of this was last fall's earnings announcement where AMZN blew the roof off of it, up ~130 pts for the day. Whatever the put seller received (5, 10, 15 pts?) paled in comparison to that move. Margin would favor the short put as well since it's ~20% compared to 50% for the underlying.

    To the downside, the put seller will always fare better than the shareholder since his cost is reduced by the premium credit received. If you want to play at that altitude, consider vertical spreads which puts the R/R more in balance.
     
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  9. spindr0

    spindr0

    I spent some time on Seeking Alpha and an awful lot of the rocket scientists there were utterly convinced that there is no risk in covered calls and cash secured puts.

    In the case of the short put, either you get to keep the premium or you get to buy the stock at a price you were willing to own it at. Win-win !!! Risk is rationalized away by willingness to own the stock (rolling my eyes).


    Non sequitur: I hit the asked price in the after market (IBKR) and as fast as my equity order went in, the ask price jumped, leaving me hanging. As soon as I canceled my buy order, the price returned to my buy price. I did this 2 more times and identical result - no fill. Is this a function of HFT having faster speed and therefore the ability to get out of the way?
     
    Last edited: Jan 24, 2018
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  10. lylec305

    lylec305

    If amzn closes below your strike price on option expiry, you will need to buy the stock. Have approximately 140,600 available in your account per contract or 70300 with margin. Otherwise you can cash settle.
     
    #10     Jan 27, 2018
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