關於CSP的討論串(elitetrader.com)

sec2100

https://www.elitetrader.com/et/threads/selling-premium-strategy-never-discussed.327608/

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Hi ffs1001,

These are good questions, the sort of questions I expected when I started the thread.

1) Stock Selection - I'm not concerned with volatility per se, only the percentage of premium available to me. I want to collect at least 1%, or 40 cents on a $40 stock. I know I'm not going to keep that much on average, so I like to look for situations that offer around 2%. These will be harder and harder to find as the week progresses.

In most situations, this amount of premium will only be available on stocks with high IV. If you pick one with higher current IV than historical IV, you might collect a good premium with the expectation that the stock will return to its HV, speeding the decay to your advantage.

It's probably best, at least until you are very comfortable, to trade liquid stocks with daily volumes of several million shares. This keeps the bid/ask spread narrow. Many weeklies only allow order prices in 5 cent increments, it's probably best to avoid those also.

I have a basket of stocks that meet these requirements and I watch their price behavior every day. Jesse Livermore stressed the importance of what the tape was telling him in making his trading decisions. I interpret that to mean price action and volume, and I think you can often get a "feel" for how something might move based on what you've learned about its past behavior.

2) Timing - For me, timing is more art than science. I'm much more comfortable selling puts after a pullback, or if not a pullback then near the bottom of the short term range. Other approaches may work as well. I usually take a few positions early in the week, while keeping some powder dry for opportunities later in the week. It is surprising how many opportunities are available on Wednesday or Thursday, even sometimes on Friday.

3) When I have to carry through earnings, I accept the additional premium along with the additional risk. It's not unusual to get a 3% premium or even more. But if it tanks, you either have to wait longer to realize your gain or take the loss and move on.

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dentist 2725 writes:


i am an options trader with moderate experience, far less than many on here. I have both bought and sold options and, of course, have experienced both wins and losses with these strategies. I have not backtested anything but I have to say that I believe that selling premium is the better way to go. The time I may disagree with that is if you are a rank beginner, where buying options may be the way to go due to the defined risk. It is my opinion that if someone has not mastered the mechanics of managing a trade or the emotions that come with dealing with a trade going against you (more likely with a beginner), than the defined risk of buying an option is better.

For the more experienced options trader, I feel that selling premium is the way to go, for many of the reasons stated previously. If I like a stock, I may sell a put on it to get it at a better price. If I don't get it, I have at least received a premium. The trade can go against me a bit if I am out of the money and I can still win. If I am assigned and the stock continues to go down, how is that any riskier than if I had bought the stock outright? If I am selling a put on a stock, I choose one with a good dividend so if I am assigned and the stock goes down, at least I am receiving something.

If I buy a call and the underlying goes nowhere I lose money, being subject to time decay. If I am a beginner, it is a way to learn without much risk. I would invest only a small amount in this strategy. If I sell a put, I can win even if it goes against me but I must learn the mechanics of how to manage a losing trade. No one should be selling premium without understanding this. It used to scare me (it still does a bit but I am more experienced now) and it is important to thoroughly review an exit strategy before a trade is made.

Feeling bullish: sell puts or do credit put spreads on a major ETF. Feeling bearish: sell credit call spreads on a major ETF. Feeling neutral: sell covered calls on a stock or ETF that you own. I never advocate selling naked calls. I do call spreads a few days out on the major ETFs. I put a stop on these to cap my loss.

In summary, I think selling premium is a better strategy for those with some experience and this can be done in any market.

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El OchoCinco 寫到:



It says MECHANICALLY. This is why an individual can make 25 to 30% return selling premium because they are not blindly selling at a fixed strike OTM regularly but they adapt and adjust based on how they read the market. A fund is like a giant dinosaur making mechanically brainless trades based on their model. So don't take what a large dinosaur fund does mechanically as a limitation to what a retail trader can do with more agile decision making powers than a fund trying to go in and out with 1000s of contracts on illiquid strikes.

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@smallfil Having just found out you blocked me, I want you to know, you have 0 clue on how to trade options. You only buy options because you do not have enough dry powder in your account. What you keep talking about on this forum is how limited your risk is. You are the definition of scared money.

If you ONLY buy or ONLY sell options, you are doing it wrong. Options are a game of relations. If you sell expensive premium, you want to look to offset your risk by buying cheaper vol somewhere else, or hedge with the underlying.

@smallfil you are a chart reader who trades options. That is a recipe for disaster.
Keep buying those options bud.

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Hi Robert

Thanks for starting this thread, I also sell iron butterflies and strangles monthly for a consistent return, and so far it's been working well (so far being the key word). I do appreciate where you're coming from with regards to minimizing your risk. The consistent theme on this board (that I've seen anyway) seems to be when it comes to selling premium/shorting volatility, one is exposing themselves to massive risk that, on a long enough timeline, will break your account.

I have found the "trade small, trade often" approach, while closing the trade at predetermined profit targets, has produced a consistent profit even with some large losses. Also, rolling the losers for a credit (and only a credit) has turned a good potion of my initial losers into small winners, tilting the odds of consistent profits in my favor even more. Lastly, ONLY betting 3-5% of my total portfolio, but diversifying multiple trades across multiple sectors, has caused my losses to not be catastrophic to my account. As long as I never bet more, they never will be.

The only difference in my approach is I always roll the position forward a month with the same strike prices, thereby keeping the same risk profile. Sooner or later market cyclicality usually kicks in, and I'll get a chance to exit my position at a profit, or at the very least, a much smaller loss than I initially took. I've been doing this for over a year now and am up about 22% YTD, and I've never had to roll a trade more than 3 months before getting out.

I am glad to see that there are others who are defying the conventions of what we're doing being the inevitable way to ruin. Please keep sharing thoughts.

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So called "rolling" a position with options is simply reopening the same position when the option expires and you've lost the premium on the original option, in this case it's done when the price moves against. Calling it "rolling" sounds so much better than "I put $1 down on tails and lost the coin flip so I'm putting another dollar down on tails for another coin flip" which is what is actually happening.

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maximumpossiblesuffering gets it: "One of the keys, which you are adhering to is avoiding the use of leverage. It is hard to blow up an cash only account." I also agree with your other points.

Those who compare my approach to James Coudrier of OptionSellers.com or Karen the SuperTrader are missing the point entirely. They lost everything when they no longer had the capital to cover their positions and were liquidated for margin requirements. In Karen's case, she tried to conceal the disaster with outright fraud. I will never receive a margin call because I set the cash aside to cover the position when I open it.

Karen was using short strangles with unlimited risk potential. Vomma was exponential whenever her position experienced volatility in either direction. I don't do that stuff.

Neither is my approach a martingale strategy. Martingales are exposed to open-ended risk. I am not. Every time I buy a put back for more than I received and sell a new one, I am actually mitigating my loss compared to an outright stock holder, with the possibility of closing at a small loss or even a profit while the stock owner must wait for full recovery.

But yes, I have losses. If MSFT goes to zero tomorrow, I'll lose a lot. But how many dire warnings do you see for stock investors, "it could go to zero and you will lose everything"? It's just a knee-jerk reaction so many people have when the word "option" is brought up. Options were invented to manage risk, and that's what they do if used properly.

I probably do have an irrational bias about going long. I'm just more comfortable receiving my profit up front and then seeing how much of it I can keep, rather than hoping for a large enough move before expiration to counter the eroding time value before I can make a profit. Going long does have a lot more profit potential. It just suits my temperament to hit singles and doubles. I usually struck out when I swung for the fences.

Selling equity options instead of the index helps me diversify. I do have stock-specific risk, but it's spread out over several different stocks. How would I diversify if I had everything in the index? Then I would have index-specific risk.

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One of the keys, which you are adhering to is avoiding the use of leverage. It is hard to blow up an cash only account. Other ideas include being more selective when selling puts which based on your performance, sounds like you had been doing. Another idea would be to use a stop at technically significant points on your puts to avoid some of the larger losses. I have seen several situations in the last couple of months where index puts as well as calls have appeciated several thousand percent in a matter of hours.

In my opinion, option trading does not relieve a trader from many of the decisions an outright trader needs to make. There are times to either adopt a different strategy as an adjustment to changing general market conditions or to be more selective in the use of your strategy.

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I've traded WLL since the October drop, from 56 to 28. I have traded a lot of stocks that have lost 20% to 45% of their value. I opened a Micron(美光科技) position at 60. It's now at 37. The lesson to me is that if my strategy is viable under these conditions, I have little to fear.