@JSOP I think the CBOE put index sells one atm put monthly and does it mechanically. It doesn't size up based on vol. Important point to remember.
You're completely wrong here. Options against indexes is the norm. Options against individual stocks is not. You're basically advocating for more risk by choosing a small basket of "diverse" stocks.
The trade-off is either trading really rich systematic risk (i.e. selling index risk premium) or trade less-rich (probably) diversified risk in low-beta names (i.e. selling single name risk premium). One has more scale and better statistical properties, while the other has more opportunities for name selection and providing liquidity (though I am not sure that's what yobo does). I don't think there is a right or a wrong here.
In your example you used mini SP500 futures contracts and options on those contracts. I don't trade futures for index exposure, but I will trade index ETFs and options for ETFs such as IWM and SPY. I'm really not sure what your point is. First you said do not sell puts against the index given the low vix or implied volatility and then when I said I didn't mention selling puts against i960, For me you are beyond understanding, so I ask what is your point? From my perspective, their is nothing wrong with a well executed naked put strategy, but you seem to be against it altogether and you certainly want to challenge my approach. What is it that you don't like specifically? I've been in this game for a long time, not because I'm stuck in my ways, but because I constantly change and adapt to different conditions and scenarios. Can you be constructive?
I think we all just wanted to warn new comers to options that there is no advantage either buying or selling options mechanically or blindly. So, those web sites telling you that 90% of options expired worthless and therefore you will always make $ selling are misleading as hell. You obviously have a system instead of blindly selling puts and that is why you are profitable year in year out, through both up and down markets, I assumed. I am new to options, being at it only since 2013 so haven't been through the 2008-09 situations and I have great respects for the pros here at ET who gave me invaluable perspectives and allowed me to avoid a lot of pitfalls and be profitable. If you are successful, you don't have to defend your method, just enjoy the profits! I appreciate you sharing your experience and hope to learn a little from you because I do sell puts and calls in addition to buying them. Best wishes to you.
Very well said ironchef. That mantra of " 90% of options expire worthless" is so .. worthless.. Let's dissect this for a minute. At the last 1 minute before expiration, there are options on either side of moneyness. The deeps,ats and outs. In order for that 90% figure to be true, most calls issued for that time series would've expired which means the ticker would've gone straight down so what used to be deep in the $ is now OTM and since puts have reverse moneyness 90% of the puts would be ITM.. NOW most important is the issue of options trading favoring sellers over buyers...If you assume that all market participants are not in it to give money away, then the sellers edge argument can't be true. There has to be something in it for the buyer in order for them to accept this form of asymetric payout otherwise NO ONE WOULD BE ON THE other side of the trade. You can't attribute the buy side as just naive or stupid for being long options. Read the histories of the always short traders-Niederhoffer,etc.... there are people on the other side of those trades and they ain't stupid.
My issue is not with selling things naked puts or calls (although I think that's eventually asking for it and one should atleast consider hedging to the best of their account's ability if possible), it's entirely about selling *far OTM* puts and calls. Did you even look at the article I put in there from Surlytrader showing the results of ATM straddles vs strangles for instance?
Buyers are not stupid. the question to ask yourself is why are they buying those otm strikes that seem impossible to reach and never go into the money? I did read. Good stuff.
Never say never It's a question of price - what do you think is a fair price to pay for the options that you are selling? Once you have an idea, then you can say that these things are rich or cheap
Which is why you should seriously be asking yourself why you're selling them. Know what what a unit put is? Do you really want to be the guy paying out for the other guy who's basically using you as insurance for his put spread closer to the money?