We’ve adjusted a position in the Paid-to-Play portfolio today: [Read more…]
Las Vegas is an Excellent Short Premium Seller.
There are no free lunches on Wall Street and certainly not in options trading.
It might be sexy to tell people that we’re “options premium sellers” and suggest that all we do is sell naked options that expire worthless – while keeping all the premiums for ourselves. Easy peasy.
But we know that’s not really how it works.
There’s a risk in holding naked short options. Our brokerage houses are keenly aware of these risks – and that’s why they require us to post margin in order to hold these positions. The margin protects the house. Mostly their house, but our houses too.
When a short options position goes against us, our brokerages need to ensure we have adequate buying power in our accounts to close the position and prevent further losses.
But just because we need to post a certain amount of dollars to hold a position doesn’t mean we should calculate our returns off of that number. That number doesn’t mean anything other than the fact that it’s the amount the house needs in order to be comfortable with us being naked short.
If we’re measuring our returns in naked short options trades based on our margin requirement, we’re going to be disappointed. We’re going to look at our possible gain in the trade and think to ourselves: “I’m risking $4000 to make $150? — that reward-to-risk math looks terribly skewed against me!” [Read more…]
[Options P2P] Adjustment to TLT Position
We’ve adjusted a position in the Paid-to-Play portfolio today: [Read more…]
[Options] Going For a Margin of Safety in Tech
There’s a time to be aggressive and go for big gains, and there’s a time to shoot for higher probabilities with smaller payout potentials.
I’m finding it hard to muster any conviction to go either long or short right now, as I can make compelling cases for both the bull and the bear thesis here.
In today’s tape, my feeling is we need to err on the side of being too conservative and trade with a margin of safety.
So today, we’re putting on what I feel to be a conservative, delta-neutral options trade in the technology sector ETF $XLK.
[Options P2P] Adjustment to XLU Position
We’ve adjusted a position in the Paid-to-Play portfolio today: [Read more…]
[Options P2P] Rolled ITB into November
We’ve adjusted a position in the Paid-to-Play portfolio today: [Read more…]
[Options Premium] Consumers Going Sideways
Depending on who you ask, people might agree that consumers are feeling the pinch of inflation. The sentiment that I encounter on a nearly daily basis is: “I can’t believe how much _____ costs now. It’s insane!”
If we look at a daily chart of the consumer discretionary stocks ETF $XLY, we might draw a conclusion that consumers are beginning to feel tapped out, as the upward momentum in early 2023 seems to have run out of steam.
With elevated options premiums in $XLY, this sets up a nice options premium collection play.
[Options P2P] Adjustment to XLB Position
We’ve adjusted a position in the Paid-to-Play portfolio today: [Read more…]
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