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@cyanide12345678
Excellent post about your put-selling strategy. I study a bit from good futures / options traders and they're very intelligent people -- very mathematically inclined. Personally, it's not my cup of tea as it's horrendously tax inefficient.
Why do you keep rolling contracts every 2 weeks? Why do you try to avoid having ITM or ATM contracts?
You are understating the risk of selling naked puts when you try to frame it nominally. You lost 200% of premium when the stock owner lost 10%. You are reducing risk because of good position sizing. It would be a good idea to go into that so someone whom decides to copy you won't blow up their account.
Essentially there will be larger supply of $. Why will increased supply of $ result in low-ish return of relative scarce asset? FYI, you should be hoping stocks go up. Because as a put seller of stocks, your profit increases if the underlying stock increases. Sure, you're also making money from theta decay but that also applies if you sell puts in non-stock assets.
It's unlikely US stock market will be like Japanese stock market. What happened to the Japanese was due to Plaza Accord. US is stronger country than Japan and can make Japan commit seppuku to boost US economy. No country can do to US what US did to Japan. Power imbalances between countries exist and there is a reason that US stocks outperformed non-US stocks for a long time. Some die-hard indexers are still waiting for when international stocks starting outperforming. Lol.
Yes very tax inefficient if you’re in a high tax bracket. But if you trade spx, ndx, xsp, rut then you are very tax efficient as even a 1 minute hold will have 60 percent of profits treated like long term capital gains
I don’t roll every two weeks. I’m giving hypothetical scenarios of an arbitrary amount of time to explain a point. I roll when I’ve achieved 35-50 percent of the profit. But in my example i had to show defined outcomes in a defined set of time.
I only stay significantly out of the money due to leverage. Premiums can go sky high if in the money. I avoid that. I have happily just dropped strikes, dropped my eventual return, for the sake of decreased risk and staying significantly out of the money. Even if i get in the money, it’s usually fine, but i almost exclusively do that when something is ridiculously under valued and i see a bottom nearby. In fact, even today i did a trade where i just dropped strike, decreased eventual return by 3k. Which is fine. Id rather get 30k return than 33k return if its more likely to happen.
My de-risking trade today as an example:
Agreed - position sizing is one of the most important things when doing naked positions. A lot of people do credit spreads - often times they easily over leverage a credit spread and can wipe out an account. I didn’t understand position sizing initially and i was selling 17-18 rut contracts in a 200k account and making 15-20k a month when i started - the market was moving my way. If the market had moved against me - i would have gotten destroyed. Now with a 4 times larger account, i barely have the guts to open 17-18 rut contracts - too big a position.
Im usually aiming for 1.5 to 2 percent cash on cash return per month (~15k a month based on 700k account size). So my 2 month out puts will basically carry 30k in premium. I maintain something similar, if I’m winning and my possible premium gain drops too much, i increase risk to add premium. If I’m losing and my possible premium has increased significantly, it is not unusual for me to drop risk and decrease total premium for a smoother ride. All in all, 15k premium per month is 2 percent of my account. A 300 percent loss this would still only be a 6 percent loss for the account. To get a 300 percent loss, the underlying will have to drop very very significantly in a very very short time.
Yes, i make money if stocks go up. That’s the easy part of selling puts - everything is going wonderfully as planned. But really the beauty of selling far out of the money puts is when you make money even when something drops.
I understand it’s unlikely to be the next japan stock market - but it’s not as unlikely to have a flat decade given the frothy valuations and deteriorating macroeconomics for the country. That was just a point i was making that even in a japan like event, most likely the put seller comes out ahead. Again - decades of research backing that up. Some of it i linked in my post above.