Hey Paul, it's been a while since you and Will helped me understand the implications negative gamma. I really appreciated that. I see you are still out here fighting the good fight. I am curious do you ever sell puts? I do, but typically only to reduce the cost basis of a company that I really want to own. I sell cash secured puts and almost exclusively on dividend producing stocks. The way I look at it is: I'm not a great market timer, so given a decent buffer in the strike price, the worst case scenario is I'm assigned and am left with an income producing asset. Any thoughts on this strategy would be appreciated.
Yo Chris, glad to see your name. Your strategy is perfect for exactly what you want to achieve. I'm a big MO fan myself ;). In addition to selling puts straight out, I also love trading Iron Condors. The problem as of late or years for that matter is the low IV (implied volatility) in these stocks (aside from the meme stocks). You have to assume more delta than you normally would just to make the same kind of money.
Great strategy though
Also, watch yourself today. That break at 4100 (spx), will flush the index below ~4000 area (~3997-ish). There is really no option support until maybe 3800 level. We need to get a rally above 4150-4177...with a decreasing VIX for the rally to continue. If you need any help, just give me a shout.
Thanks Paul! Its funny that you mention iron condors. Will recommended a book, "Option volatility and pricing", I've just now got to the iron condor chapter. It's a very theoretical book, any real world tips? do you ever have issues where a leg is taken out prematurely?
Also what brokerage do you use? I've attempted to use various delta neutral strategies on thinkorswim, with varying degrees of success (or failure). After trying to understand why some failed, I did some digging and found that thinkorswim uses the average implied volatility as an input to its option pricing model. IV is an output of the model. How could that be an appropriate input for volatility?? My problem is sometimes i struggle to remain delta neutral; sometimes even overnight where volatility remains relatively constant. I'm starting to think the delta presented by the platform is not correct because its based on a flawed volatility input. What do they use for the volatility input in the industry?
Will recommended a great book. Generally, with condors, there are a few schools of thought. I will usually write a 20 delta buy a 16 delta. As you know you need to put (sorry for the pun) on a decent size position to make any money. It really comes down to how volatile the stock/index could be. Also, I will look at the option with an approx expiration of 45-55 days. Some of my studies suggested that the option decay starts kicking in ~50 to expiration. This is one of those topics you ask 5 traders the same question...you get 5 different answers.
I use TOS for most of my stuff It's a great platform. I knew the trader who developed the platform. I stood by him in the SP 100 pit for years.
I agree with using the average, but getting close to delta-neutral without hand calculating every trade, TOS is the next best thing.
Going back to your first question, if one of the legs gets breached, I might reset the leg once, but most of the time I will just unravel the position, lick my wounds and go into another direction.
Awesome Paul. Thanks for the tips. How long did you work in the pit? I'm a software engineer by trade, but trying to learn, so I really appreciate the real world insight/experience that yourself and a few others share!
Yo Chris. Total ~10 years...after I traded a hedge fund...now running investments for a Financial Planning firm.
With your background, I cannot see you trading anything else but options. Just keep reading...lose money (the price of learning to trade ;) ) and do not get discouraged.
Greg you need to let everyone know they will need collateral to sell puts. Also otm puts 30% out are around 10 cents. Are you saying sell a lot of 10 c puts versus 30 cent puts at 15% otm?
I'm curious as well. At 10 cents you are risking the strike price x 100 to gain 10 bucks. How many of these things are you selling to make it worthwhile?? I do sell put options as I described above, but I simply don't understand the risk-reward equation on this strategy. Anyone making money doing this??
I'm wondering the same thing. Not only is the premium extremely low, most of the time selling 2 weeks to 1 month out, 20% or more OTM Puts won't even get filled. I was trying this with CSCO recently.
Greg is implying imo that the train has wrecked and it's not coming. i.e. FED will buy it all. Take it to the bank. So it's free premiums for the puts. IMO of course.
Greg, you absolutely do a disservice to your "Lions". Discuss margin requirements and the true risk of this strategy.
Quit being like every other dirtball on YT/Twitter and actually provide value to your crew.
Hey Paul, it's been a while since you and Will helped me understand the implications negative gamma. I really appreciated that. I see you are still out here fighting the good fight. I am curious do you ever sell puts? I do, but typically only to reduce the cost basis of a company that I really want to own. I sell cash secured puts and almost exclusively on dividend producing stocks. The way I look at it is: I'm not a great market timer, so given a decent buffer in the strike price, the worst case scenario is I'm assigned and am left with an income producing asset. Any thoughts on this strategy would be appreciated.
Yo Chris, glad to see your name. Your strategy is perfect for exactly what you want to achieve. I'm a big MO fan myself ;). In addition to selling puts straight out, I also love trading Iron Condors. The problem as of late or years for that matter is the low IV (implied volatility) in these stocks (aside from the meme stocks). You have to assume more delta than you normally would just to make the same kind of money.
Great strategy though
Also, watch yourself today. That break at 4100 (spx), will flush the index below ~4000 area (~3997-ish). There is really no option support until maybe 3800 level. We need to get a rally above 4150-4177...with a decreasing VIX for the rally to continue. If you need any help, just give me a shout.
Stay safe and Liquid my friend.
Thanks Paul! Its funny that you mention iron condors. Will recommended a book, "Option volatility and pricing", I've just now got to the iron condor chapter. It's a very theoretical book, any real world tips? do you ever have issues where a leg is taken out prematurely?
Also what brokerage do you use? I've attempted to use various delta neutral strategies on thinkorswim, with varying degrees of success (or failure). After trying to understand why some failed, I did some digging and found that thinkorswim uses the average implied volatility as an input to its option pricing model. IV is an output of the model. How could that be an appropriate input for volatility?? My problem is sometimes i struggle to remain delta neutral; sometimes even overnight where volatility remains relatively constant. I'm starting to think the delta presented by the platform is not correct because its based on a flawed volatility input. What do they use for the volatility input in the industry?
Will recommended a great book. Generally, with condors, there are a few schools of thought. I will usually write a 20 delta buy a 16 delta. As you know you need to put (sorry for the pun) on a decent size position to make any money. It really comes down to how volatile the stock/index could be. Also, I will look at the option with an approx expiration of 45-55 days. Some of my studies suggested that the option decay starts kicking in ~50 to expiration. This is one of those topics you ask 5 traders the same question...you get 5 different answers.
I use TOS for most of my stuff It's a great platform. I knew the trader who developed the platform. I stood by him in the SP 100 pit for years.
I agree with using the average, but getting close to delta-neutral without hand calculating every trade, TOS is the next best thing.
Going back to your first question, if one of the legs gets breached, I might reset the leg once, but most of the time I will just unravel the position, lick my wounds and go into another direction.
Awesome Paul. Thanks for the tips. How long did you work in the pit? I'm a software engineer by trade, but trying to learn, so I really appreciate the real world insight/experience that yourself and a few others share!
Yo Chris. Total ~10 years...after I traded a hedge fund...now running investments for a Financial Planning firm.
With your background, I cannot see you trading anything else but options. Just keep reading...lose money (the price of learning to trade ;) ) and do not get discouraged.
AND take Greg's advice with a grain of salt.
Stay safe and liquid!
Greg you need to let everyone know they will need collateral to sell puts. Also otm puts 30% out are around 10 cents. Are you saying sell a lot of 10 c puts versus 30 cent puts at 15% otm?
I'm curious as well. At 10 cents you are risking the strike price x 100 to gain 10 bucks. How many of these things are you selling to make it worthwhile?? I do sell put options as I described above, but I simply don't understand the risk-reward equation on this strategy. Anyone making money doing this??
I'm wondering the same thing. Not only is the premium extremely low, most of the time selling 2 weeks to 1 month out, 20% or more OTM Puts won't even get filled. I was trying this with CSCO recently.
Noob question. Don’t you need collateral to back the put?
You will need up to 100 x the price of the put strike in reserve buying power.
If the option gets exercised, you must purchase 100 shares. If you do not want to own the shares, you can sell at a lost.
you dont need to own any stock, but you better have the cash to buy 100 shares per contract at the strike price if you get assigned.
Super advice!
Greg what puts are you selling today?Help us lions make some money.
Thank you.
You upped my game Thankyou so much love you bro
Thank you for this awesome tip!!!
I've heard selling puts is comparable to picking nickels off a train track it works for a long time and then you get cleaned out LOL
Greg is implying imo that the train has wrecked and it's not coming. i.e. FED will buy it all. Take it to the bank. So it's free premiums for the puts. IMO of course.