The bears den

[littleredboy]

This is so very f-omg well said. A lot of course sellers are advocating this method, with the selling point of “you will never lose money”. Yeah sure, try selling put and get exercised when gapped down from $200 to $100, then gap down to $40. Yeah sure, console themselves by selling call. Slowly earn premium and wait for price to go back up lo.

“Never lose money” + “unrealized paper loss only, hold long term”. Sure my @rse....

There is no edge in this strategy of selling puts. Often, you think that you have picked a good key support level but when you get ... these considerations get taken into account, the strategy may not look that great after all.

 

[DukeCS33]

I am selling PUTs on SPY and that too at 10% lower. If I get assigned it is good. My allocation to stocks is very low, so I will buy SPY and hold it until it recovers. I will sell only 1 SPY PUT and not 10. So I have enough fire power to sell more PUTs if and when SPY falls.

You have to agree, that this is less risky than being outright long in SPY.

No I disagree with the approach. It is inherently a risky strategy. Remember this phrase - high risk high return? But unlimited risk, limited return???? How can selling an option which gives you limited return but unlimited downside risk be less risky? If you do not understand how option portfolio is managed, how would you mitigate your risk from SPY falling and the option sold being exercised on you? In any case, the directional view implied from selling a put means that you do not expect prices to fall to that level so selling more puts when SPY falls and is expected to fall further just goes counter to your stated approach.
Seriously, I would suggest that you pick up John Hull's book on Options and read it. Understand the instrument that you are intending to trade in, and how it is priced. This is all theory but you need a basic understanding before moving to the practical aspects of options trading.
And if you pick this approach from the "techniques" touted by so called training gurus, ask them some very basic questions : how are they pricing options and managing the risks of an option portfolio. They should be experts at explaining the market's practical usage of delta instead of the textbook's definition of "Change in option price as a result of a change in the underlying asset."

 

[cubana]

Guys what is your opinion about the tech company "slack"?

can buy?

https://finance.yahoo.com/quote/WORK?p=WORK

high risk high return. take small pos lor. I put in same cat as Netflix, every time post earnings shakes more than nymphomaniac having orgasm

 

[littleredboy]

Trading is an Art, not a gamble.
When your stars align, you stand to gain.
When you are blind, don’t blame the game.

 

[DukeCS33]

Guys what is your opinion about the tech company "slack"?

can buy?

https://finance.yahoo.com/quote/WORK?p=WORK

From my platform, I see losses every year from 2016 and negative cash flows. This is not a stock that I would touch from a fundamental analysis perspective. From a technical analysis perspective, it has been on a down trend. Volume has been high and that suggests HFT or short term traders churning this stock. What is your basis for buying?

 

[FrostWurm]

From my platform, I see losses every year from 2016 and negative cash flows. This is not a stock that I would touch from a fundamental analysis perspective. From a technical analysis perspective, it has been on a down trend. Volume has been high and that suggests HFT or short term traders churning this stock. What is your basis for buying?

All growth stocks (especially in tech) exhibit these traits but that has not stopped some of them from doubling in price within a few years. Of course, there are also many that have crashed and burned.

 

[DukeCS33]

All growth stocks (especially in tech) exhibit these traits but that has not stopped some of them from doubling in price within a few years. Of course, there are also many that have crashed and burned.

Yes... so it really depends on your approach. You need to have a very good macro view of the entire industry to weed out the unicorns and those that will survive and the traditional way of fundamental analysis would not suffice. However, of all these so called tech names or disrupters, only 5% eventually succeed. There are so many companies that are already profitable to invest in and unless I have a very strong view or edge in picking such tech companies, I would prefer to take the conservative approach. That is why I asked for the rationale for picking this company. I would be keen to learn from those who has an edge or an industry insider perspective.

 

[revhappy]

No I disagree with the approach. It is inherently a risky strategy. Remember this phrase - high risk high return? But unlimited risk, limited return???? How can selling an option which gives you limited return but unlimited downside risk be less risky? If you do not understand how option portfolio is managed, how would you mitigate your risk from SPY falling and the option sold being exercised on you? In any case, the directional view implied from selling a put means that you do not expect prices to fall to that level so selling more puts when SPY falls and is expected to fall further just goes counter to your stated approach.

I think you are confusing my approach with some of the snake oil salesmen approach. Nope, I am one of the last persons to buy into anything that promises something to be too good to be true.

Anyways, I will attempt to explain again what I am trying to do.

Regarding you statement of unlimited downside, this is same as going long with SPY. I am choosing the index and not a single stock that will never recover. Buying SPY also has the risk of unlimited loss. I fully understand there is lot of greeks to options and various strategies out there to make sure that losses are limited, but that is not my approach.

When I said sell more PUTs when the market is falling is the same as buy low and sell high. You can never buy at the lowest point, invariably markets move against you after you buy and then you are supposed to hold on to your position and wait until it recovers. I dont beleive in putting stop loss, or cutting losses. I just wait until recovery and the key to that is to not over-leverage and to choose something like SPY that will recover.

The various option strategies that you mention invariably involve leverage and hence they have inherent hedges to prevent unlimited loss and wipeout of account. Selling cash secured PUTs means just going long on the stock, if the strike price hits and then you just buy and hold.

 

[Shiny Things]

I am selling PUTs on SPY and that too at 10% lower. If I get assigned it is good. My allocation to stocks is very low, so I will buy SPY and hold it until it recovers. I will sell only 1 SPY PUT and not 10. So I have enough fire power to sell more PUTs if and when SPY falls.

You have to agree, that this is less risky than being outright long in SPY.

Firstly, "PUT" isn't an abbreviation; it's not capitalised. You're not selling PUTs, you're selling puts.

Secondly, no, I think I'd say put-selling strategies are riskier (though it depends on your definition of "risk" a bit), if for no other reason than you're taking on all of the downside and basically none of the upside. (If you don't believe me on the "none of the upside" bit, have a look at the performance of PUTW, the ETF that tracks the CBOE Put-Write Index, and compare it to SPY over the last one, five, or ten years.)

That said, if you can actually hold onto the SPY when you get assigned, this is not the worst strategy in the world. Think you can do that?

Options appears quite a useful skills to pick up!

Do you think it is smarter to use options than individual stocks picking?

Im going to ask in ST thread!

You know, I think r/wallstreetbets would be right up your alley.

 

[peterchan75]

hold onto the SPY

This is simple and yet very hard to do. It's difficult to tame the monkey in the mind. Those drunken monkeys are extremely hard to control.

 

[DukeCS33]

Have a look at the price action of BSX from 8 Oct. Do you think that this is a bear flag formation waiting to breakdown or it is an absorption area and prices would rally instead? TA gurus, kindly opine with your analysis so that all can learn. No right or wrong answers as TA is an art that is subject to interpretation.

 

[DukeCS33]

A Guy on Reddit Turns $766 Into $107,758 on Two Options Trades


https://www.bloomberg.com/news/arti...-turns-766-into-107-758-on-two-options-trades

 

[blue_denim24]

As they call it , this is financial pornography. They would not post the number of individuals who went from 100k to 100 dollars for every such case as below .

A Guy on Reddit Turns $766 Into $107,758 on Two Options Trades


https://www.bloomberg.com/news/arti...-turns-766-into-107-758-on-two-options-trades

 

[Mecisteus]

Have a look at the price action of BSX from 8 Oct. Do you think that this is a bear flag formation waiting to breakdown or it is an absorption area and prices would rally instead? TA gurus, kindly opine with your analysis so that all can learn. No right or wrong answers as TA is an art that is subject to interpretation.

I will recommend to just buy and hold the medical devices sector ETF.

 

[candy crush]

From my platform, I see losses every year from 2016 and negative cash flows. This is not a stock that I would touch from a fundamental analysis perspective. From a technical analysis perspective, it has been on a down trend. Volume has been high and that suggests HFT or short term traders churning this stock. What is your basis for buying?

look like many company is still using slack and gut feeling tell me it might rise

 

[DukeCS33]

I will recommend to just buy and hold the medical devices sector ETF.

Thanks I was just trying to encourage a discourse from the TA experts.

 

[churnmaster]

Firstly, "PUT" isn't an abbreviation; it's not capitalised. You're not selling PUTs, you're selling puts.

Secondly, no, I think I'd say put-selling strategies are riskier (though it depends on your definition of "risk" a bit), if for no other reason than you're taking on all of the downside and basically none of the upside. (If you don't believe me on the "none of the upside" bit, have a look at the performance of PUTW, the ETF that tracks the CBOE Put-Write Index, and compare it to SPY over the last one, five, or ten years.)

That said, if you can actually hold onto the SPY when you get assigned, this is not the worst strategy in the world. Think you can do that?



You know, I think r/wallstreetbets would be right up your alley.

I don't think its correct to compare the performance of SPY with CBOE Put-Write Index or any instrument tracking that index for the following reasons:

First, its an index based on ATM puts and Second, is it's cash settled nature, where you realise the losses while don't get assigned.

A similar methodology with OTM puts (say 5% below the spot) and delivery based options where you take delivery of the underlying if get assigned, would have shown much better performance especially during periods when the S&P 500 was moving sideways over this 10 yrs bull run.

Do you think we are in a sideways market for now ?

 

[revhappy]

I don't think its correct to compare the performance of SPY with CBOE Put-Write Index or any instrument tracking that index for the following reasons:

First, its an index based on ATM puts and Second, is it's cash settled nature, where you realise the losses while don't get assigned.

A similar methodology with OTM puts (say 5% below the spot) and delivery based options where you take delivery of the underlying if get assigned, would have shown much better performance especially during periods when the S&P 500 was moving sideways over this 10 yrs bull run.

Do you think we are in a sideways market for now ?

Indeed and this strategy is more comparable to fixed income returns than SPY. There is some inherent leverage involved when you sell puts. I keep about twice the required margin although fully cash secured means about 5 times required margin.

In my case I sold 10% lower strike SPY 2.5 months ahead and got a premium of about S$240. I have placed 10K SGD in the account which makes the return about 11% annualized.

For a person with portfolio of 100k, he can sell 3 puts, so 30% of his portfolio is generating 11% while remaining 70% is generating 2%, which averages out to 5.36% returns on the overall portfolio. Whenever SPY falls and you get assigned, you just hold on to it until the price recovers.

So in this case, you either get 5.36% returns fixed or you get to buy SPY at 10% lower price, isn't it a good risk reward?

 

[FrostWurm]

A similar methodology with OTM puts (say 5% below the spot) and delivery based options where you take delivery of the underlying if get assigned, would have shown much better performance especially during periods when the S&P 500 was moving sideways over this 10 yrs bull run.

I would certainly like to support your assertion, but could you provide some evidence for it?

 

[revhappy]

I would certainly like to support your assertion, but could you provide some evidence for it?

You can model it yourself. PUTW, in a down month squares off its position at a loss and takes a new short put position at the lower level atm, relative to previous month, so even if the markets bounce back to old levels, it doesnt capture that profit entirely. But if you change the strategy to anchor the strike price to the previous high, whenever there is a loss, then eventually when markets bounce back the loss will be recovered.

For example in December 2018, markets closed at a low. No sane person would have sold atm put at that level.If he has to sell puts, he would rather sell deep in the money put further out like 6 months to capture the full upside.