The bears den

[Mecisteus]

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.

1) Any data to back up your claim?
2) A buy and hold in S&P would have yielded good returns too in the last 10 years.

 

[Shiny Things]

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:
[...]

A similar methodology with OTM puts (say 5% below the spot)

I’m spitballing here but I don’t think the moneyness of the options will make any difference. If anything, if you’re selling OTM options, you’d think you’d earn less premium and have worse performance in anything other than a downward market.

delivery based options where you take delivery of the underlying if get assigned, would have shown much better performance [ed note: than a cash-settled buy-write strategy] especially during periods when the S&P 500 was moving sideways over this 10 yrs bull run.

Now this I do agree with, but at that point this just becomes a buy-and-hold-the-SPX strategy, right?

 

[revhappy]

I’m spitballing here but I don’t think the moneyness of the options will make any difference. If anything, if you’re selling OTM options, you’d think you’d earn less premium and have worse performance in anything other than a downward market.

You didn't read his post properly. He said this strategy will be better during flattish periods on sp500.

Ofcourse this is no substitute for sp500. There is no free lunch in the markets. It is just something in between fixed income and equities.

 

[revhappy]

atm options have 0.5 delta which means there is 50:50 chance that the option will expire in the money. You must sell options with delta 0.2 so you will have 80% chance of it expiring out of money.

 

[Mecisteus]

atm options have 0.5 delta which means there is 50:50 chance that the option will expire in the money. You must sell options with delta 0.2 so you will have 80% chance of it expiring out of money.

Go for the lowest delta then. And put big money in.

 

[revhappy]

Go for the lowest delta then. And put big money in.

You need to find an optimum value. If you go very low, then you will have to look at leveraging to make it worth it. For example SPY 200 put for next year end offers 1.5% yeild and very low delta. This can be safely leveraged 4X and you make 6% yield.

 

[Shiny Things]

For example SPY 200 put for next year end offers 1.5% yeild and very low delta. This can be safely leveraged 4X

Erm. I've got LTCM on the phone, something about "copyright infringement"?

Anyway, I thought you were doing cash-covered put-writes? Leveraging 4x sort of goes waayyy beyond the definition of cash-covered.

 

[revhappy]

Erm. I've got LTCM on the phone, something about "copyright infringement"?

Anyway, I thought you were doing cash-covered put-writes? Leveraging 4x sort of goes waayyy beyond the definition of cash-covered.

At 200 SPY you may want to take on leverage and buy SPY. Cash covered is for strike 10% below spot.

I didn't get your point about copyright infringement. You mean, you have this trade on?

 

[FrostWurm]

I didn't get your point about copyright infringement. You mean, you have this trade on?

He meant that your suggested strategy is similar to what LTCM did

 

[DukeCS33]

At 200 SPY you may want to take on leverage and buy SPY. Cash covered is for strike 10% below spot.

I didn't get your point about copyright infringement. You mean, you have this trade on?

hahaha... Looing at your buying behaviour, I do not think so. If you dare not leverage when it is 10% below spot, you would not leverage at 200. If the SPY crashes down to 200, few would dare buy unless he has a trader's mentality.

 

[churnmaster]

I’m spitballing here but I don’t think the moneyness of the options will make any difference. If anything, if you’re selling OTM options, you’d think you’d earn less premium and have worse performance in anything other than a downward market.



Now this I do agree with, but at that point this just becomes a buy-and-hold-the-SPX strategy, right?

Yes, it becomes a 'buy and hold' strategy. And, if you think we are in a sideways market then go and sell an OTM call option against the long underlying.

Its important to note that you sell put options only if you are comfortable to be long the underlying at that strike price.

 

[revhappy]

hahaha... Looing at your buying behaviour, I do not think so. If you dare not leverage when it is 10% below spot, you would not leverage at 200. If the SPY crashes down to 200, few would dare buy unless he has a trader's mentality.

If I remember correctly, I always bought at the right time and was never afraid. I just sold early trying to book profit and buy back at lower levels. Those lower levels never came.

 

[DukeCS33]

If I remember correctly, I always bought at the right time and was never afraid. I just sold early trying to book profit and buy back at lower levels. Those lower levels never came.

Well done then! Chance favours the brave.

 

[DukeCS33]

This forum will ban retards on a regular basis. So lets see who is the next to get banned… that's the real retard.

 

[revhappy]

Inspite of the earnings disappointments, markets are still staying high, due to expectations of a Fed rate cut and also resolution of trade war.

 

[Mecisteus]

Inspite of the earnings disappointments, markets are still staying high, due to expectations of a Fed rate cut and also resolution of trade war.

Because there are still bearish people staying out of the market.

Once this group of people enters the market, that will be the end of the bull run.

I think there is a chance that US market will break the previous highs. Probably next 2 weeks?

Like I predicted previously, the bull run will continue till next year and if it does, that is the time I will become more fearful.

 

[Shiny Things]

I think there is a chance that US market will break the previous highs. Probably next 2 weeks?

More like next two hours, amirite? The SPX has already made a new intraday ATH today, and if it closes above 3025-ish it'll be a new closing ATH as well.

 

[Mecisteus]

S&P 500 index briefly trades above all-time closing high on trade, earnings optimism

https://www.marketwatch.com/story/u...estors-up-for-fresh-run-at-records-2019-10-25

The volatility in the last 2 years is in a similar setup to the 2 years of volatility started in 2014.

And you know what happened after the highs were broken at that time.

 

[DukeCS33]

Because there are still bearish people staying out of the market.

Once this group of people enters the market, that will be the end of the bull run.

I think there is a chance that US market will break the previous highs. Probably next 2 weeks?

Like I predicted previously, the bull run will continue till next year and if it does, that is the time I will become more fearful.

My old man trades the SG markets only. His style of trading is very similar to yours - contrarian within certain parameters. He is old school - no charts, no fundamental analysis but he has an excellent memory for price action. His trading income fall outstrips his monthly pay as a school teacher. I have asked him if he should quit and trade full time and he gave me a very good answer - one's psychological makeup would be different - he earns a stable income as a teacher and that takes care of family expenses. Without that, he would be trading with scared monies and that would hamper his ability to take CONTRARIAN trades.

 

[peterchan75]

My old man trades the SG markets only. His style of trading is very similar to yours - contrarian within certain parameters. He is old school - no charts, no fundamental analysis but he has an excellent memory for price action. His trading income fall outstrips his monthly pay as a school teacher. I have asked him if he should quit and trade full time and he gave me a very good answer - one's psychological makeup would be different - he earns a stable income as a teacher and that takes care of family expenses. Without that, he would be trading with scared monies and that would hamper his ability to take CONTRARIAN trades.

Interesting observation. Similar to having a high proportion of cash stash away somewhere. But need to guard against reckless actions though.