understanding selling puts

Discussion in 'Options' started by regardspratik, Mar 15, 2013.

  1. Hi guys,
    I am basically in an infantile level compared to all of the threads i have read here.

    my question to you guys is, If I know that the comp is on bullish trend, can I sell the put options to make the premium on it?

    ie. nok is at 3.5. and if sell the nok put with SP for 3 on either two weeks or 1 month basis and make a quick 100 ish bucks whts wrong with tht? from wht I understand, even if the stock gets to 3.1 at the exp date, I would still be safe correct?

    Options house lets me do the cash secured put selling, so I am basically stuck with stocks which has price less than 20. which are more than enough for me.

    I did this strategy for aapl in my virtual "practice" account. its up abt 500 bucks already in couple of days.

    I also did the nok though the unrealized PL is down (i could care less abt it).

    YOUR OPINIONS- THE GOOD, BAD, THE NASTLY will be appreciated.
  2. metameta



    read, buy books, read more, start with single contract on underlying. trade every month with super low leverage on a bunch of different underlyings through each cycle up down sideways in less than 10 years you will have a basic understanding.
  3. NOK's $3 APR put is $0.08. That's $8 through APR expiration.
  4. Thanks atticus

    that was jst an exp which I did in my virtual account. I bought 10 contracts BTW.

    I know 70 is basically a CHUMP change, and I comp understand that, I jst want to know if this strategy is plausible.

    also, as long as the price stays above the strike price, I am basically not at risk correct?
  5. lindq


    The premium is not worth the risk you are taking in the underlying tanking under you. That is true in any market, but especially now with the VIX at such low levels, and the market at new highs.
  6. While I am NOT in agreement with his stock selection, his $0.08 credit, for a 5 week trade, translates into a 28% annualized return.
    Given it's a $3 strike, that's a very good credit.
    It also comes with a 12 - 13% otm safety cushion.
    While that sounds like a reasonable otm cushion, NOK is a volatile stock.

    However, on a positive note, earnings are NOT expected, before the contract expires.
    But again, I do not like the strike or the stock.
    If i were to bet the stock, which I'm not,.... i would wait for the stock to drop closer to $3 and then sell the 2.5 strike for the same credit per unit of time.
    There is tech support at $3 and again at $2.5.
    Thus a "double" tech supported trade.
    That's important for a stock with poor fundamentals.
  7. When you do this you're betting that put is overpriced. Whether that's true historically for NOK I have no idea, but generally, according to the CBOE anyway, this is true for the S&P.
    See this: http://www.cboe.com/micro/put/default.aspx

    Even if you never do this (and I haven't) there's good info there as far as understanding why it would work and it at least gives you one way to try it systematically.
    Of course if you do try doing what they're saying, do it in a fake account first.
  8. lindq


    Expecting to receive annualized returns on short puts?

    A recipe for disaster. For anyone, but most especially for an inexperienced trader who doesn't know what he doesn't know. Until it's too late.

    This market environment, with a rising tide lifting all boats, is the one most dangerous to those just looking at selling premium for the first time. They think the party will last forever. But when the music stops playing, the body bags always pile up.
  9. <<< Expecting to receive annualized returns on short puts? A recipe for disaster..... >>>

    Of course an investor should expect a % return for selling a put.
    Why else would you do it?
    It's only a recipe for disaster, if the stock drops 30% or more below ones strike.
    While i do NOT like his stock or strike, his strategy is reasonable.... particularly since he will NOT be using margin.

    Frankly I don't like his % return either.
    I think it's too high.
    Given his level of experience, he should give the stock a chance to drop more, and then select an even lower strike ($2.5), with an even larger otm safety cushion, and a resulting lower % return.
    Perhaps something in the 12 - 15% range vs his current 28% annualized return.
  10. The $2.50 put is offered at $0.02.
    #10     Mar 15, 2013