Does it matter to a put seller if we're in a bear market? Won't premiums go up? My business model doesn't depend on asset appreciation. I hope these aren't my last words. I'm not a very good salesman.
You lose less when markets tank. You also win less when markets soar. If the stock rises more than the premium you received during a week, you'll have to either reduce the number of options to raise your strike or write more options at a much lower strike, reducing your exposure to further upside.
Yes, it does matter if you're in a bull or bear market when selling puts. Selling puts is generally a bullish strategy, and the risks of your puts expiring ITM rises. For your specific strategy with less than 7 DTE, maybe not so much. For a longer time horizon, you would need to somehow adjust your volatility for drift, to chose proper strikes. Cheers, Felix
I appreciate everyone's response. For my purposes, I don't even think in terms of bull or bear. Stock prices fluctuate. They go up and down. I've been on plenty that went down substantially. If the more general trend is down, it does require more management than if they all just expire.
Like today, 12/04/18, if you sold puts and it continues to tank, premiums will get very expensive. Not sure if you can keep rolling down if the premiums become too rich. Your losses will mount as it continues to drop. I would rather buy the put options. Bought put options on AAPL, NVDA and QQQ today and all are profitable by a decent amount. If it continues to tank say, Thursday, put sellers will be losing substantial amounts of monies! Just my opinion that the premiums you received is not worth the huge risk you are taking. In contrast, I just need a couple of these huge moves either up or down to make it worth the limited risk I am taking!
Smallfil, I doff my hat to you if you are able to buy options and make money. I could never do that and it would make me a nervous wreck. I sold WLL 31 puts today when the stock was at 32.01 for a premium of 67 cents. The stock is now at 30.82. As things stand now, I could go down to a 30 strike for the following week at even credit.
Other options traders also, buy options and make monies with it! I am not even that good of a trader. I botched my call options trades, getting out with tiny profits this morning. Should have gotten out yesterday but, decided to hang on. That is on me. Bought put options and went short this time out and that made up some of the lost gains atleast! Actually, our losses are capped to the cost of the premium (worst case scenario) but, nothing prevents you from closing the position out if it does not go your way! So, one more risk management method that cuts our risk even more. Residual value of the premium bought can be used for the next trade. Oh, I sleep fine. My risk is always limited no matter what happens!
This is basically what Karen the Supertrader does. She sells options for premiums and then if it moves against her, she rolls until the options expire worthlessly. I hope you don't hit a "rogue wave". Good luck!
Question: Since, your strategy is to roll down until, it works in your favor, what happens when say the stock keeps going down by huge amounts thereby forcing you to keep rolling down. Wouldn't that just compound and enlarge your losses to the point, you can no longer roll it down and have to take that very huge loss? Also, wouldn't that very large loss wipe out all your small gains from selling the premium and also, part of your capital?