put options during that time had thousands percent ROI. then if you trusted that there will be a quick climb back you could make another crazy return with calls.
not recommended if you can't track prices at least hourly, though.
Selling OTM covered calls is not a trade that's going to blow up your account. The worst case is that you suffer a drawdown in your account (which is a risk of all investing). The second worst case is that you miss a massive, short-term rally.
I don't see where you get the impression they were ever talking about selling uncovered calls. Selling out of the money calls has nothing to do with selling puts. As yes selling cash secured puts even with some leverage is considered very safe. Here is a fund that does just that.
Long term puts (at least 2 weeks out) on the market are the safest investment that you could possibly make. The market recovery today is a dead cat bounce. Mark my words I guarantee you that I will be right about this
The parent was referring to OTM call selling, not covered calls only. Covered calls are pretty low-risk. Selling OTM calls includes selling puts, which is not low-risk unless you're unlevered (everything covered by cash.)
I remember the day before the stock tanked. The volume vs. open interest on way OTM puts was absurd. Traders made several thousand percentages on their positions.
Edit: picked up some historical data. 40k volume on front month 25 puts for .275 a contract. Finished next day at 4.25, and the day after (Monday) at 20.30. This one gives you about a 7400% gain.
The problem with covered calls is you take on all the downside risk of the stock collapsing and get none of the upside gains if the stock rockets. Writing way OTM covered calls will not net many proceeds unless the stock is super volatile which means you likely have a lot of downside risk.
A good example from recently is Ford. Was trading at around $6 a few months ago and not too volatile. OTM calls were pretty cheap that were a few dollars up and essentially worthless at double the price. Anyone writing those was getting almost no premium. But then the stock took off quickly and hit over $12. Anyone who wrote those calls enjoyed none of those gains.
So even a stock like $F can move in very unpredictable ways.
>> Selling OTM covered calls is not a trade that's going to blow up your account. The worst case is that you suffer a drawdown in your account (which is a risk of all investing). The second worst case is that you miss a massive, short-term rally.
Depends on whether youre fully cash secured or not. If you are fully cash secured, you barely make $. If you're not, now you're leveraged and a steep draw-down can wipe you out.
Good point about the expiration. If I was betting on the $17 figure I would buy options that expire in a few months. The 48 cents was just a conservative number to throw out there (value of puts w/ $17 strike price would probably be higher if the stock is significantly below the strike).
Everyone please be careful buying puts if you're not doing it for insurance against current holdings. If you're buying anywhere outside of the .30 delta and less than 21 days until expiration (even then) you're probably buying a lottery ticket.
The average person would be better off buying 10 x $5 scratch off lottery tickets tomorrow and accepting the result... than buying a far out of the money short dated put.
reply