Author Topic: The perfect trade  (Read 5700 times)

boilermaker75

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Re: The perfect trade
« Reply #60 on: October 09, 2019, 07:09:19 AM »
I couldn't help myself, I just wrote some BAC 27.5-stirke, October 11 expiration puts for $0.30 per share. I did it in my IRA so they are cash-secured.

Boilermaker - just curious if you can share your strategy around picking the strike price vs. premium collected (which in my calculations consists of things such as time value, volatility, etc.) vs. probability of assignment (here I have my betas, deltas, vegas).

Nothing scientific. 90% of my writes have an expiration from a couple of days to a couple of weeks and I look for a premium of at least 1%.


boilermaker75

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Re: The perfect trade
« Reply #61 on: October 09, 2019, 07:15:54 AM »
It is amazing how quickly this thread turned from a 40% a year perfect trade to put writing strategies that yields stable 8-10%. If you are not the athlete trying to be the Olympic champion making 40% a year, why not just put your money into an index fund?

I am a LTBH investor. I am not writing puts on my whole portfolio. Today it is mainly on the cash portion, which is small because I am almost fully invested. Here are more details of what I do.

First, I use writing puts to enter positions. All my current positions were entered that way. It gives me the discipline to wait for my price. I donít have that patience with just limit orders. Besides I get paid while waiting to be exercised, probably why I am more patient, and it lowers my basis by the put premium. A criticism would be not acquiring a position because you donít get put to. This has only happened to me once. I wanted to acquire some MCD at $50 and was never put to. So, I missed out on a four-bagger so far.

Secondly, I use puts to do some trading. Usually stocks I already own and at prices I would not mind if I were put to. Most of my positions are written when the expiration is a few days to about a month out. For the rest the expiration is 1-2 months out when I write the put. I am selling insurance and collecting very nice premiums, but unlike insurance, if I have to pay a claim I end up with a stock I donít mind owning at the price I am put to.

Third, it is also a way to be margined in the sense if I would be exercised on all my outstanding puts I would be on margin. From 2008-2016, if I were put to on all my outstanding puts, I would have been around 25% on margin. I only ended up slightly on margin a couple times and by writing covered calls (equivalent to writing a put) I was quickly off of margin. Recently, I have been writing puts where I would be just slightly on margin if put to on everything. Currently I am short puts on BRKB, WFC, and BAC.

Fourth, I also like to write puts to play risk arbitrage. For instance, when BRK was acquiring BNI I was writing at-the-money puts on BNI. If I outright bought BNI, I would have to wait till the acquisition closed to know my return. By writing puts I was setting the date when my play would be completed and what my return would be. I then followed an expiration with writing more puts. I did this till BRK closed on BNI.
« Last Edit: October 09, 2019, 07:18:07 AM by boilermaker75 »

Cardboard

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Re: The perfect trade
« Reply #62 on: October 11, 2019, 06:54:39 AM »
"Or buy puts when VIX is<14 and SPY >300. I am 3:0 on this trade. I think I made about 70% on average each time, just closed my last round yesterday. Itís definitely a no brainer, especially when in addition to above Trump says that trade talks are going well."

We are getting close for this one to work again IMO. There could be some interesting excitement if a semi-trade deal happens (seems like the odds are raising) but, it could be short lived as focus will return to interest rates not coming down due to it, incomplete deal and a weak Q3 for earnings.

Spekulatius

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Re: The perfect trade
« Reply #63 on: October 11, 2019, 02:50:18 PM »
"Or buy puts when VIX is<14 and SPY >300. I am 3:0 on this trade. I think I made about 70% on average each time, just closed my last round yesterday. It’s definitely a no brainer, especially when in addition to above Trump says that trade talks are going well."

We are getting close for this one to work again IMO. There could be some interesting excitement if a semi-trade deal happens (seems like the odds are raising) but, it could be short lived as focus will return to interest rates not coming down due to it, incomplete deal and a weak Q3 for earnings.

It’s pretty close to these targets. Based in the press (from unnamed sources  - ha) there actually isn’t any deal yet, just the promise of a kick the can deal - the Chinese buy some AG goods, Trump delays the tariffs. Better than a poke in the eye, but not a breakthrough. We will see where this goes next week.

One comment # if a pattern keeps repeating, it’s probably not a good signal any more.
« Last Edit: October 11, 2019, 02:55:05 PM by Spekulatius »
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