Beats having a limit order, may as well make some premium while waiting for the stock to get to your chosen price. Assuming the return is viable.
@Seeking Truth
Depending on your appetite, risk management and your margin capabilities, you can get into a stock position by selling naked puts collecting some premium and if you get assigned, you own the stock you wanted. Of course you need to calculate the size of your assignment, and of course after fees whether the premium is worth it.
That is the truth of it, especially CC writing.Having traded options for years now, I struggle to find a community of options traders, especially in Australia.
I'm going to go out on a limb here and say most people are not profitable (or unable to beat the index). Early in the piece I did trading courses and kept in touch via chat site/social media with several others. Most people stopped and weren't doing well or weren't happy with the results and a lot made losses.
My theory on this now is that it's like being back at school, all of us had the same teacher, same education, same books, same tuition, same amount of time, yet in a class of 30 there was mixed results.
I do follow options traders in the USA and they have been by far profitable. While some years they didn't beat the S&P500, I did note they were consistent year after year and they had some form of protection should the market decline. The best example I saw recently was a seasoned covered call writer in March lost only 5% although the market declined over 25%.
A former wall street trader provided a supposition that if all you wanted to do was beat the Index, then write covered calls deep out of the money against the index earning no more than 1% premium per month against the index, ie SPY, $SPX. This was insightful, however, you'd have been hard-pressed doing that from October through to mid-Feb. 6 to 10% p.a. above the index, in my opinion, is a nice return, yet most would laugh at that.
Central Banks, especially the Fed and ECB@ wayneL
What is CB?
You can play with ratios and/or roll strikes when prudent, on your short call with your pmcc FWIW. Have a think about that if you haven't already.Wayne,
Thanks for your awesome insight.
Sitting on a long position with the banks pumping cash in has been a good strategy.
I have a portfolio of stocks and I probably will always still write calls as well.
Most of my trader buddies are doing well with just going long at the moment.
By way of example on a junior gold miner ETF I entered a PMCC last night with expiry of 10 July and slightly ITM. This one is more a defensive play and by close of trade this morning I already missed out on nice capital gain (had I not written a call).
For me its about taking the guess work out of the market and making an income regardless.
For the most part I've probably proved why this strategy would perhaps overwhelm some. My trade will potentially have me missing out on lots of capital gain on expiry which will make many think "what now."
So definitely risk and reward to consider. In my CC portfolio I'm happy with how I manage the risk vs reward. I don't hit 4s and 6s but get the singles.
I also have a portfolio where I'm only long.
With the PMCC (ie simulated long position) my ROI will be ~18%. (ROI isn't typical, vol has created the opportunity)
As for Aussie options, I definitely wont touch them for all the reasons you and many others have said.
The big risk nobody thinks about, apart from the Greek risk everybody should know about, is "contest risk". That is the costs of placing trades... brokerage, spread, slippage, and in Oz options this risk is extraordinarily high, relatively speaking.... Ozzie RTs are as cunning as sh1thouse rats and also because of our lack of sufficient liquidy can take you to the woodpile and have their way with you.
it looks nasty when you flip open the market and see a 0.66/0.95 on a front month ATM staring right at you, but then you try to trade into it, get filled at 0.80, and wonder to yourself, if they're prepared to give me 0.80 for it, why didn't they just show a better spread to begin with?
I often wonder about this myself, is it in case they get hit with size ?
Regardless the volume offered on the bid/asks has been pretty lean post covid.
it was showing 0.66x25 / 0.95x25 at the time, yet they still bought my 48 contracts @ 0.80 pretty much instantly.
Registered Trader = Market Maker
The US options market still has quite a spread on options. Certainly the further out in time you go.
I always get filled at the midpoint of the spread, however, it pays to make an order past the midpoint and ratchet it back in until the order is filled.
Particularly for this reason as you say Sharkman. (When my order is filled instantly I know I didn't try hard enough for a better price)
While I've not traded Aussie options, I imagine it would be similar.
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