Thread Rating:
  • 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5
Conservative option strategies, what did you buy or sell today?
#11
    I have not traded utes outside of T so fender got me thinking of trading XLU. I', looking at a weekly chart with 3emas and it looks like this may be the start of a pretty good strat.

Green bars; wait for a lower week then sell puts.
Red bars: wait for an up week and sell calls.

In addition to income for myself, I'm trying to develop mechanical type strategies for my young adult children as an additional income stream they can execute without the learning curve that I've needed.
Reply
#12
(02-19-2019, 11:01 AM)NilesMike Wrote: I have not traded utes outside of T so fender got me thinking of trading XLU. I', looking at a weekly chart with 3emas and it looks like this may be the start of a pretty good strat.

Green bars; wait for a lower week then sell puts.
Red bars: wait for an up week and sell calls.

In addition to income for myself, I'm trying to develop mechanical type strategies for my young adult children as an additional income stream they can execute without the learning curve that I've needed.
The trouble with UTEs is they are now at the top of their valuation for a sane entry, or they have fleas you need to research.  Any idiot could have prospered selling quality Ute puts the past 6 months like I did.  There is a day it becomes a bad idea.  Time to be selective or patient IMO.  I am going to slow it down now until a dip comes.  Somebody please let me know when that is going to happen because the smart investors are cautious after this dramatic run up.  Utes are about as safe a place to hide out as any.  Right up until you overpay.
Reply
#13
I aslo do not hold until expiration. I take them when there's only 25-30% of the premium left. Really ups your winning percentage by leaving a little on the table before gamma (price) become overly influential.
Reply
#14
Nor do I hold until expiration when it makes sense. I'm not trying to make this overly complicated for others though. Once they sell a put or call they can watch the price and decide when the risk reward no longer makes sense. Most of my put sells are truly an attempt to buy the stock cheap so I don't overly stress it. That said, if I sell a put in MMM for $400 and a week or so later it is only worth $100 because the stock ran $10, then yes I might ring the cash register and the chance of me being assigned is now very low anyway. I have done that several times with MMM alone. No sense holding it another 4-5 weeks if a better opportunity is out there. In honestly if I buy back a option, I am usually paying $10 or less with commission included to clsoe it out, and only a week or two left until expiration. Letting them expire worthless is great, but if I need the capital for new put sales I close a few. My primary goal remains to build a DGI port, not become an options trader exclusively. I am mostly trading the same options over and over in companies I have researched to death. I am not going to wake up sad when the market turns on me, and someday it will, and forces a bunch of shaky stock buys on me.
Reply
#15
Thankfully it was only for 100 shares of GE. Yeah, if I did get stuck with it, I would have immediately started selling calls on it for income. I knew it was a gamble when I sold the put, but it was a small gamble that I was willing to take.
Reply
#16
(02-19-2019, 11:54 AM)ChadR Wrote: Thankfully it was only for 100 shares of GE.  Yeah, if I did get stuck with it, I would have immediately started selling calls on it for income.  I knew it was a gamble when I sold the put, but it was a small gamble that I was willing to take.

I do that with a stock or two per month.  It's admittedly fun.  It is easy to let greed get you when premiums on shaky stocks are often the best.  The premiums are high for a reason and I always keep the speculative stuff to a very small % of my port.  I see no harm it it, but it is a slippery slope.  many people get lucky doing it when the bull is running, then they mistakenly think they have it completely figured out and double down with margin.  Smile
Reply
#17
I know I don't have it figured out on my gambling option plays. This was a one time quick hit that I knew had a small percent chance of burning me. And it was a very small percentage of my portfolio so if I was burned, it was minimal.

No way this is a common occurrence. Nearly all of my options are for stocks that I want to buy. Though if I see a stock that I believe is extremely overvalued, I will buy a put. Rarely do this as I don't like to spend money and as you say, 90% of the options expire worthless.
Reply
#18
(02-19-2019, 12:38 PM)ChadR Wrote: I know I don't have it figured out on my gambling option plays.  This was a one time quick hit that I knew had a small percent chance of burning me.  And it was a very small percentage of my portfolio so if I was burned, it was minimal.

No way this is a common occurrence.  Nearly all of my options are for stocks that I want to buy.  Though if I see a stock that I believe is extremely overvalued, I will buy a put.  Rarely do this as I don't like to spend money and as you say, 90% of the options expire worthless.
I have no problem with somebody buying an option, but you are gambling and those odds are against you.  It depends how you spin it, but I think about 70% of options expire completely worthless.  You could however make money trading that option that will eventually expire worthless.  If you are buying it's a casino pure and simple.  They have done the math.  Now you can buy a put as a hedge against a long position.  I don't do it, but you are in effect buying insurance.  I prefer the be the insurance agent in this scenario.  That is truly how I view this.  You are afraid your HD is going to drop in value?  I'll take your $300 insurance premium for a month and I'll buy 100 shares of HD for $5 under todays price if you are right, because I have no problem owning the stock long-term.  I suppose we can both win in this scenario, but your average Joe is not winning buying calls.  He'll lose in the end because the odds will make that happen.  Play until you lose big, and you will eventually when the market makes a violent move you didn't predict..

All that said, if I was going to buy calls it would be on a bad news over-reaction.  I repeatedly win that bet from a more conservative angle.  That SIX put I sold for $340 late last week can be bought back two trading days later for $225.  That's a pretty sweet profit if I had sold 10 puts, but that would be gambling with my port balance.  I'll leave the position alone for now because I am OK with the owning it long and taking the big Div, given the currently known situation with SIX.
Reply
#19
There is no inherent advantage to selling premium as opposed to buying premium. They are simply the inverse of each other. Selling equals many smaller wins and then a large loss (that's why we here do them on stocks we would like to hold). Buying premium equals many small losers (the premium you paid) and then some big winners.

The "secret" sauce is in the application of options and risk management.
Reply
#20
Agreed, when you add the eventual intention of going long it turns our bad day "loss" into the end goal. Albeit we end up buying some stocks at a premium to current market price, but we picked the price in the first place. It comes down to proper selection of the option. Rookies tend to purchase way out of the money calls because they are very cheap and they can hit that home run if it works out. That is where the 70-90% loss rate stats come from. They are true, because that is what many people actually buy until they figure it out. The smart money does not unless they are playing algos and trading it ten minutes later. I'm sure there is plenty of that going on as automated as things are.
Reply




Users browsing this thread: 2 Guest(s)