study: selling puts outperforms covered calls.

Discussion in 'Options' started by Free Thinker, Feb 28, 2011.

  1. spindr0

    spindr0

    Might wanna rethink that one :)
     
    #11     Feb 28, 2011
  2. listen, selling premium is a great strategy on paper. The statistics look great and yes more options expire worthless than in the money. However, when selling NAKED you are basically the insurance company when you sell puts and calls... yes you will make lots and lots of small gains month after month. The gains will add up to a nice return and then BAM!!!!!! BOOM! a hurricane hits, a famine hits, a flood hits, a a forest fire hits, and then you lose everything it took you six months to make. You have to cover all that premium just like the insurance companies have too and guess what you do not have millions of people paying mandatory premiums every month.. you are screwed.

    I advocate selling premium, but you need to be even more disciplined and cut losses and have a set plan even more than out right trading.

    Be careful liars use statistics and statistics never lie
     
    #12     Feb 28, 2011
  3. Locutus

    Locutus

    :/ If you do it right selling insurance is the best way to make money, however you need a large account size to have meaningful returns and proper risk diversification (perhaps 10m+). I wouldn't try being the insurance company on my own with less than a few million in capital.

    Also cutting losses on sold premium often gets expensive because most options (that are most worth selling) have pretty wide spreads and the commissions will eat you alive.
     
    #13     Feb 28, 2011
  4. Well since I don't trade straight stocks long or short it's kind of a moot point anyway.
     
    #14     Feb 28, 2011
  5. Arjun1

    Arjun1

    The studies show that the PUT and BXY Indexes beat the SPTR (s&p total return) buy 1-3 %.
    However the indexes do not account for the cost of taxes, slippage, or commisions.
    Once those costs are added, those strategies lose their advantage. The biggest expense would be the 35% tax on short term cap. gains.
    A 16% pretax gain is needed just to match the SPTR net taxes.

    Also, since premium is invested in treasuries, income from holding treasuries is a significant part of the performance of the PUT index.
     
    #15     Feb 28, 2011
  6. spindr0

    spindr0

    Moot points don't make incorrect statements correct :)

    Covered call has same risk as equivalent short put
     
    #16     Feb 28, 2011
  7. yeah that skew can get nice, especially on a big VIX spike and panic on fresh news event.
     
    #17     Feb 28, 2011
  8. In IRA, you cannot write contracts even if it's cash covered, the most they will let you do is long spreads and that requires you to sign the agreement in blood and hand over your firstborn to fidelity...

    So that's another reason to write covered calls instead of cash covered puts - because you cant. Although i have switched to leap ditm calls (5 strikes in) + front month "covered" 1-2 strike otm calls for some additional leverage, seem to be working better so far.
     
    #18     Feb 28, 2011
  9. you are wrong about that. get a real broker.
     
    #19     Feb 28, 2011
  10. Roark

    Roark

    In selling puts you get screwed once for commission plus spread. With covered calls you have to pay commission plus spread for the stock and the call, so expenses are greater. Hence, selling puts should have a higher return over that of the covered call strategy.
     
    #20     Feb 28, 2011