selling put options

Dear Micromike

I donot mind buying some good shares at cheap prices. I have sold put at 360 in BARC and at that price the shares if assigned would be cheap in my opinion to buy. It might be a question of just holding on for a rebound. I use Options Direct as my broker and is not advisory. I can view the options prices on mytrack software. They have always tried to improve on the quote.

I thank everybody for input on this thread and I agree it could be dangerous but the price at which you sell put is a big factor for cutting down significantly on the risk. Remember one can close the position at any time.
 
Micromike,
Read
Options Plain and Simple
Lenny Jordan
isbn 0273638785

Frankly, with no disrespect intended towards anybody, you would be wise to get yourself an options education starting with that book, rather than follow some of the advice proffered in this thread.
I traded options for some time so I know a little.........
Hopefully RogerM might post, and his advice should be listened to.
I simply choose not to get involved here as it would take up too much precious time.
Again, no disrespect to anyone.
 
For those who choose to embrace the high risk of writing naked puts, at least consider selling a put spread instead to minimise your risk.
I hate to see anyone putting (sorry!) themselves in harm's way ;-)
 
Mr. Charts said:
Micromike,
Read
Options Plain and Simple
Lenny Jordan
isbn 0273638785

Frankly, with no disrespect intended towards anybody, you would be wise to get yourself an options education starting with that book, rather than follow some of the advice proffered in this thread.
I traded options for some time so I know a little.........
Hopefully RogerM might post, and his advice should be listened to.
I simply choose not to get involved here as it would take up too much precious time.
Again, no disrespect to anyone.
Click to expand...


Would be helpful if you were more specific about which advice to avoid. These newbies need all the help they can get. [ also no disrespect to anyone]
 
No, waqr, sorry.
However tactfully I could phrase it, the author(s) of wrong or misleading statements would be offended or embarrassed and I have no wish to upset anyone.
I don't have the time to engage in the prolonged debate which would ensue as some of the comments on this thread demonstrate a very weak understanding of the complexity and risks of options.
Although the internet and this site in particular are great sources of mutual help, most people, especially newbies, tend to believe that some posters are very capable when they are not.
Many aspiring traders spend months or years gleaning half truths from such views and end up unsuccessful and much poorer financially and emotionally.
No wonder the majority fail, they get eaten alive by those who KNOW what they are doing.
The answer is simple. Like anything else you will only learn how to succeed at something if you have a proper education.
Would you teach yourself to fly a helicopter by reading what other people say about it? An unwise and false economy.
That book is an excellent start.
I hope that helps, waqr ;-)
It comes down to the difference between being an amateur and a professional.
Best wishes,
Mr. Charts
 
Mr Charts

Please feel rest assured that I myself have no intention at this stage of starting to trade options. I'll certainly read the book you recommend. I am very risk adverse so I would not go into anything as risky as this without proper research and study.
 
Mr. Charts said:
No, waqr, sorry.
However tactfully I could phrase it, the author(s) of wrong or misleading statements would be offended or embarrassed and I have no wish to upset anyone.
I don't have the time to engage in the prolonged debate which would ensue as some of the comments on this thread demonstrate a very weak understanding of the complexity and risks of options.
Although the internet and this site in particular are great sources of mutual help, most people, especially newbies, tend to believe that some posters are very capable when they are not.
Many aspiring traders spend months or years gleaning half truths from such views and end up unsuccessful and much poorer financially and emotionally.
No wonder the majority fail, they get eaten alive by those who KNOW what they are doing.
The answer is simple. Like anything else you will only learn how to succeed at something if you have a proper education.
Would you teach yourself to fly a helicopter by reading what other people say about it? An unwise and false economy.
That book is an excellent start.
I hope that helps, waqr ;-)
It comes down to the difference between being an amateur and a professional.
Best wishes,
Mr. Charts
Click to expand...


OSHO & MICROMIKE.....................READ IT & BE CAREFUL, you guys dont begin to understand how dangerous selling naked can be
 
micromike,
It wasn't you I was concerned about as you were asking the right questions and are obviously cautious and sensible ;-)
 
osho67
>Please explain how to write spresds.Thanks>

1. As a contrarian I carefully select a stock, I wouldn`t mind owing. Only SP100 or Dow30 or ESTX50 symbols.

For this I use The Benchmark Investing Strategy and a free website: www.benchmarkinvesting.com which gives you beaten down stocks of the Dow or S+P universe. I normally select symbols that are more than 15 % below their longterm multiples. I then, if I would be prepared to buy them at a price 5-10% further down. If so, how much.

2. If I was prepared to buy stocks worth 10.000 I would write options, which in worst case would have me assigned no more shares than this amount divided by strike price. So I would never buy more shares through put writing than I was prepared to buy straight away.

3. I normally select a strike price between 5 and 10 % below the present market (checking chart for BBs etc) and go for 2 % premium/month. I normally sell 6 -10 weeks before expiration.

4. I IMMEDIATELY buy a risk-limiting put (same no of contracts, same expiration) with a strike LOWER than the one I sold. It s better than a stop -loss-limit (which are not available with options), cause with the latter a market order is triggered, but not a price guaranteed, whilst with the offsetting put-buy the strike is guaranteed. For this long-put you got to pay!

This is a so called bearish credit spread. Whenever premium levels are high enough, I use these in a double version to make a significant part of my living.

This single spread is for safety. To reduce the risk. I double up for income by doing a mirroring spread on the upper side ( selling a call at higher strike than market and buying another call still further out).


5. Don`t get greedy! Don`t change stock-selections or strike selections or contract volume because of poor premiums.

Pay for books!

Hittfeld

Ubi bene, Ibi Patria!
 
Dear Hittfeld

Thanks so much for explaining the bearish credit spread I am going to follow that strategy because it gives me some insurance.

I can see selling puts has been voiced as a dangerous strategy and I am not advocating others to follow. I have been using this method partly for last 15 years. (I also use covered call options).In 15 years I had only one bad put option write. That was polly peck and I lost £3000. but over this period I have made more than 20 times in selling puts and calls. Obviously this does not prove anything and I am learning as well. Thanks
 
Dear Hittfeld

Sorry I forgot to ask you. I would like to get into us stocks for writing puts and calls as I understand the spreds are much narrower. Which broker do you use or recommend. Will IB do this sort of trandactions?Please help. Thanks
 
Dear osho67

I hardly dare to write a line on option-writing due to "political-correctness", and everything I write is not a recommendation, but just for amusement, entertainment and to show a certain view of those matters.

It all depends what you compare to: if you compare naked puts to risk-free investments, they are dangerous, but if you compare them to stock-buying, they are identical risk-wise - or even better, just chance-wise they are different. The safety of credit-spreads is i.m.h.o. much higher than plain stocks.

But one of the major parts of such strategy is the compounding effect, so one should stick to a chosen strategy, even if stocks get assigned.

If you compare stockbuying to risk-free investments, its rather risky, and shouldn`t be discussed on a public board either.


Hittfeld
 
Dear oshko67

Trading US options is most recommendable, as liquidity etc. is much better. IB is the preferred broker, with low commission ( $1.00 per contract), which only make spreads possible.

Due to ist fee-structure, fast execution and free RT-data IB makes it even possible to position trade spreads on indices like NDX, RUT, DJIA. Through the use of options you can bypass the hurdle of the $25k minimum for trading ETFs like qqq, iwm, dia etc. without going the futures road.

The use of such double spreads on etfs is a further risk-reduction as the specific risk of a stock is avoided. No index ever had a balance-sheet scandal.


Best wishes

Hittfeld
 
Mr.Chart

Agreed, Options plain & simple by Jordan is a good introductory text, though Getting started in options by Thomsett night be a better read.

For the typical longterm investor "Leaps" by Harrison Roth would be my recommendation.

But nobody should start an involvement with options without having read and understood "Options as a strategic investment" by L.G. McMillan .

But I don`t buy the amateur vs. professionals issue. How determined to success the latter are I always notice when checking the performance of mutualfunds and hedgefunds.

Best wishes

Hittfeld
 
Thanks Hittfeld, you have made valuable contribution to this topic. I will pm you for more advise when my account with IB is open
 
Hey quick change of subject,

Can I ask you guys how much commission you pay for UK stock options?

I am looking to play and a short-cut to the cheapest broker would be useful

Thanks guys
 
Dear Hittfeld

I looked into the possibility of doing a credit spread in uk. The spreads are very wide and the commission is £22.5 per leg. Please give some idea as to how much credit on acerage one can generate by doing a credit spread using us market and IB ?You mentioned RUT in one of your posts. What is RUT?Thanks
 
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