your strategy seems clever to me.what exactly do you mean with large cash reserve?how much?did you roll up(down)?
Try Lawrence McMillan's "Options as a Strategic Investment". I'm not sure what you mean by "IV on indexes is almost higher than actual", but options' prices (hence their implied volatility) reflect market's consensus about the future. You might not agree with the market, and occasionally you may prove it wrong, so you should make your trading plan accordingly. If you're talking about implied versus historical volatility, in my opinion you shouldn't give too much consideration to their relative values. Historical volatility looks at past underlying's movement, while implied volatility incorporates market's perception about the underlying's future movement and risk.
i just finished reading mcmillan for 2 timeits mcmillans advice to use indexes for selling premium-because of lower risk.if i have understand him correctly IV on indexes is most of the time higher than the following actual volatility.so there should be profit-not much-if you ignore costs.but what is the real world? or should i combine selling premium with directional opinion?
Do not go hog wild on margin. I would be wary about selling more than 4-5K in premium per 100K. I sell index premium (ES or NQ). I sometimes will sell otm puts on stocks I would not mind owning. If the straddle goes against me I will hedge by buying/selling the underlying. I generally do not roll up/down.
Real world: 1. Past is no predictor of present. 2. Just because predicted vol (IV) on AVERAGE was higher than actual volatility does not mean that everyone, or most, who sold premium profited during that time. I like selling index prem because of decreased gap risk (that explains lower IV) and ease of hedging (overnight).
You guys are talking the strategies I would like to implement. I've been daytrading for a year and have managed to break even (by luck). I'm fairly liquid in two accounts and I believe I can do all but naked deals with options. I think I would like to purchase an underlying security, then sell a call, use the cash to hedge with a put, pocket some hopefully, if stock tanks use put earnings to buy more stock. Am I heading in the right direction? Sid
It seems you're planning to implement a collar that is a conservative strategy: low reward and low risk. It works also by shorting a stock, selling a put and buying a call.
Thanks for the quick response. I would prefer to say short 500 AXP at 51 sell a jan52.50 put for 1.5 and buy a jan50 call for 1.75. Is this right?
I do not think that this is the best strategy when you seem to be a risk adverse trader. Credit spread at reversal of underlying is IMO the best way to go.