Normal
You are making the loaded assumption that a bull put trader is using the maximum position size available via margin, and therefore a thousand times bigger face value of shares than a CC trader.Depending on your situation, that's not quite true. I have portfolio margining available to me, (SPAN) which means I can lever up CCs as much as I can lever up bull puts. Same situation if trading commodity CCs.It also assumes the trader is stupid enough to do so. (as indeed there are) But to properly compare the risks of the two, the comparison must be made with similar bona fide money management procedures in place. This, you have not done.Not true, and the reason is contained in one of your later statementsI partly agree here. One of the things I hate about OTM bull puts is the difficulty (and contest risk) of adjusting bull puts. However, rolling is not the only option and a lot depends on the strikes selected. It is possible to defend in other ways.There are times and situations where CCs make a lot of sense and I fully endorse their use in those cases, but systematic buy-writing sucks in comparison to other systems.a/ If monitoring closely for rolling opportunities, why not use the full range of option strategies available as the situation demands? ... including bull puts.b/ The trading expertise required to turn a year in year out 25% profit (if indeed possible with systematic CC writing {and if we're being honest}) could be put to better use to make higher returns.This is the best statement you've made here. Most of the CC traders I see on the Internet do precisely that, ie pick the wrong stocks (though mostly US traders). Generally, they chase bigger premium by looking for high IV situations => playing with fire.See:http://sigmaoptions.blogspot.com/2006/12/reasons-to-not-chase-big-cc-premium.htmlhttp://sigmaoptions.blogspot.com/2006/12/reasons-to-not-chase-big-cc-premium_20.htmlhttp://sigmaoptions.blogspot.com/2006/12/reasons-to-not-chase-big-cc-premium-re.htmlA study done in the US (which I don't have a link for) showed that with systematic CC writing over the long term, superior returns were to be found by using stocks with the lowest IV, and therefore the lowest premiums. In other words, boring old blue chips.It also found that CCs only outperformed buy and hold in sideways and bear markets. They underperformed buy and hold in bull markets (admittedly the study did not use rolling techniques). Over a range of market conditions, returns did not appreciably exceed buy and hold, but did reduce volatility of returns.Traders who trade only CCs are a carpenter with only a hammer. It is only one tool that can be used. It's a good tool, but useless if you really need a saw.Cheers
You are making the loaded assumption that a bull put trader is using the maximum position size available via margin, and therefore a thousand times bigger face value of shares than a CC trader.
Depending on your situation, that's not quite true. I have portfolio margining available to me, (SPAN) which means I can lever up CCs as much as I can lever up bull puts. Same situation if trading commodity CCs.
It also assumes the trader is stupid enough to do so. (as indeed there are) But to properly compare the risks of the two, the comparison must be made with similar bona fide money management procedures in place. This, you have not done.
Not true, and the reason is contained in one of your later statements
I partly agree here. One of the things I hate about OTM bull puts is the difficulty (and contest risk) of adjusting bull puts. However, rolling is not the only option and a lot depends on the strikes selected. It is possible to defend in other ways.
There are times and situations where CCs make a lot of sense and I fully endorse their use in those cases, but systematic buy-writing sucks in comparison to other systems.
a/ If monitoring closely for rolling opportunities, why not use the full range of option strategies available as the situation demands? ... including bull puts.
b/ The trading expertise required to turn a year in year out 25% profit (if indeed possible with systematic CC writing {and if we're being honest}) could be put to better use to make higher returns.
This is the best statement you've made here. Most of the CC traders I see on the Internet do precisely that, ie pick the wrong stocks (though mostly US traders). Generally, they chase bigger premium by looking for high IV situations => playing with fire.
See:
http://sigmaoptions.blogspot.com/2006/12/reasons-to-not-chase-big-cc-premium.html
http://sigmaoptions.blogspot.com/2006/12/reasons-to-not-chase-big-cc-premium_20.html
http://sigmaoptions.blogspot.com/2006/12/reasons-to-not-chase-big-cc-premium-re.html
A study done in the US (which I don't have a link for) showed that with systematic CC writing over the long term, superior returns were to be found by using stocks with the lowest IV, and therefore the lowest premiums. In other words, boring old blue chips.
It also found that CCs only outperformed buy and hold in sideways and bear markets. They underperformed buy and hold in bull markets (admittedly the study did not use rolling techniques). Over a range of market conditions, returns did not appreciably exceed buy and hold, but did reduce volatility of returns.
Traders who trade only CCs are a carpenter with only a hammer. It is only one tool that can be used. It's a good tool, but useless if you really need a saw.
Cheers
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