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Yes, what sireat is saying is somewhat true. However with options I believe you have a greater flexibility and more opportunity to make gains when compared to
by icu 13y ago
Yes, what sireat is saying is somewhat true. However with options I believe you have a greater flexibility and more opportunity to make gains when compared to trading stock on its own.
With this strategy you have the chance to protect your capital (by buying protective puts) while earning an income (write premium) and capital gains (in the money Covered Call strikes and dividends). You can make money with this strategy when the market is going straight up, somewhat up, and sideways. You can protect your capital when the market goes somewhat down, but you will loose money if the market crashes.
Frankly there is much I've not said when it comes to trading that is do or die. Money management, position sizing, managing positions, emotional management, fundamental/technical/sentimental analysis just to name a few areas a successful trader should master or at the very least have a working knowledge of.
- throwaway13qf85 13y agoThe volatility skew on equities is generally downward sloping as a function of strike (because investors are scared of crashes), meaning that the puts you buy to protect your capital will be more expensive than the calls you are selling to earn the premium - if you want the same amount of downside protection as you have upside risk, you'll actually bleed cash with this strategy. The only solution is to buy less downside protection that upside risk, which leaves you vulnerable to a market crash, whilst at the same time capping your upside - exactly the situation you don't want to be in!
- icu 13y agoHi, you are forgetting about timing the purchase of protective puts or buying back the options you have written at a profit.
- throwaway13qf85 13y agoIf the price moves against you (down if you have written a put, up if you have written a call) then you never get the chance to buy the options back at a profit. You might get a bit of theta decay, but equally any large moves will tend to kill you on the gamma and vega. As I said in another comment, writing options covered or not is basically a bet against volatility.