four
5,087 posts
msg #107190
- Ignore four |
7/24/2012 9:29:40 PM
3 Parts:
1. http://tradingconceptsinc.com/trading-articles/buy-high-sell-low/
2. http://tradingconceptsinc.com/trading-articles/buy-high-sell-continued/
3. http://tradingconceptsinc.com/trading-articles/buy-high-sell-part/
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Are there "holes' in this strategy?
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main page: http://tradingconceptsinc.com/trading-articles/
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gmg733
788 posts
msg #107192
- Ignore gmg733
modified |
7/24/2012 10:16:34 PM
I didn't read the whole article as I didn't need to.
First, you can do covered calls way out in time. What the author doesn't mention is the volatility is greater further out in time as there is uncertainty, hence high volatility. What the author is attempting to do is make money of theta. The issue with long dated options is earnings. There is no free lunch. A steady stock will have almost no volatility in it and hard to make a good income. So to make any money you need to trade something with some volatility. What the author is trying to do is go out in time to capture his volatility. If I do a covered call, I prefer to do covered calls month to month. I no longer do covered calls except if I think something is peaking that I may own the underlying. In my 401k for instance I may sell upside calls if I feel a stock has run its course. But I would usually sell in the money covered calls as I get the premium and if I get called away I keep the money. I rarely trade covered calls unless in my 401k where I take stock positions.
Second, naked puts are too big of a drain from a margin perspective on one's account, at least for me, to be a feasible play. In fact, I don't want to own stock. Some folks will sell puts if they want to own something lower than current value. For instance, XYZ is selling for $30 and you think $25 is a good price for XYZ. Sell the put and make sure you have enough money if the stock gets put to you. I do not do this. The problem besides margin is you never know how low something is going to go.
If you ask me credit spreads are hard to beat. But you will have to learn how to manage and trade them. What I like about credit spreads is I only have to be kind of right to make money. Do not trade into earnings, trade around earnings, but you can make 10% on your margin per trade with some good consistency. I do time the market to see what I can get. Often the closer to expiration the harder it is to get premium. What I found that works very well is sell options prior to the current months expiration for the next month. I automatically set a profit target of 50% on the option. Yes I may not be making 10% per trade, but what I have found is 40-50% is a good target to get in and out fast for a profit. This way your capitol can be looking for the next trade. And I trade a defined set of stocks. I use stockfetcher to refine my list ever so often.
I hope this helps.
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wkloss
231 posts
msg #107193
- Ignore wkloss |
7/24/2012 11:54:31 PM
four,
I agree with gmg733 and would like to add a few thoughts.
Options aren't easy to learn. I know several people (including me) who mentored with perhaps the best mentor out there and we still aren't close to making a living. They trade full time. I don't. And yes, it could be the students.
One of the more dangerous concepts in the articles you asked about is that you can keep selling calls even if the stock goes down. Theoretically that's true but if the stock starts out at 40, drops quickly then drifts lower, you may find yourself with a dilemma. Let's say the stock is now at 28. You don't want to get called away so you consider selling safely out of the money calls. The problem is that premium is really small so you are looking a very long time getting back to breakeven. If you sell closer to at the money, you increase your chance of getting called away and may never breakeven. Your chances are worse with dividend paying stocks which are the ones you may want to hold long term.
IMO, options trading has too many strategies and variations. You might want to consider specializing in one strategy and one symbol. Here's one that I'm looking at. There is logic backing the case for earning time decay. Even so, trades can and will go bad.
http://seekingalpha.com/article/314431-a-different-way-to-hedge-with-vxx
Bill
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Eman93
4,750 posts
msg #107195
- Ignore Eman93 |
7/25/2012 3:07:10 AM
I would practice a lot...
seems strangles are the best but you still need to know where to buy..IMHO
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four
5,087 posts
msg #107346
- Ignore four |
8/3/2012 9:11:23 PM
Thank you.
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