Author Topic: Let's talk options  (Read 1692 times)

ScarElbow

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Let's talk options
« on: February 17, 2016, 05:17:31 PM »
Recent volatility presented a good opportunity to sell options for a nice size premium. I do hope volatility keeps up. Usually during this period I stay way way out of the money (like 95%) and able to collect about .20-.30 cents per contract under a put credit spread or an iron condor at a 2 standard deviation. This seems to generate high probability of success with a cap limit on losses in the event of a black swan.

Financial.Velociraptor

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Re: Let's talk options
« Reply #1 on: February 17, 2016, 06:18:19 PM »
Writing puts and/or covered calls is a central part of my retirement strategy.  Right now, I'm going as far out of the money as I can get and still earn 12% annualized for written puts.  You can earn 30+% annualized right now near the money even on stable blue chips but assignment risk is v.high.  Not bad if you want to own the underlying anyway but I'm just looking to churn for current income right now.  I stopped doing spreads and condors some time ago.  It's a lot of trouble for a trivial amount of additional risk adjusted return.  YMMV.  The only exception is if I see something I think will grind steadily and slowly higher.  Then I'll do a diagonal call lever up a little.  Nothing like that (diag/call) on my radar at the moment though.  I consider the market (for trader's purposes) to be currently guilty until proven innocent.

ScarElbow

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Re: Let's talk options
« Reply #2 on: February 17, 2016, 06:43:57 PM »
The RUT index is more volatile than most indices because of all the small cap stocks. I use the RUT to generate a lot of my income. NDX is another very liquid index to trade but I only use it for weekly trading. Theoretically you can generate as much as 50% annualized return doing a monthly bull put spread on the RUT. That is, if you're willing to put all eggs in one basket and watch the dip carefully and take the loss at 70% out from the money of the strike price. Then move on to do the same trade the next month.

Financial.Velociraptor

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Re: Let's talk options
« Reply #3 on: February 17, 2016, 06:57:43 PM »
In my more adventurous days, I would run a deep in the money bear put spread on VXX on front month expiries.  I earned 8% a month or 96% annualized.  I had to have a separate brokerage acct with just VXX options in it because I was always getting early assigned and sent to margin call hell.  I never had a losing trade on that deal but it was a PITA and the taxes thereon were a flippin nightmare.  Brokerage couldn't seem to distinguish basis from its ass.  Also, ran afoul of wash rule on early assignments many times.  It can be done but I question the legality.  You are doing something that puts the brokerage at risk in a way you know will likely result in margin (contractural) violations.  It's straight up abuse of the broker.

ScarElbow

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Re: Let's talk options
« Reply #4 on: February 18, 2016, 11:03:06 AM »
I always make sure my margin balance is positive and that I have buying power in my account. Just like credit card, don't buy anything you can't afford to pay back. Then all the headache of paying interest, uhh no thanks. I act like a trader but think like an investor. Play with high probability and manage the risks. That's all there is to trading options.