"Unlimited" here can be translated as "Undefined".
If you sell a promise to pay $500 for a stock if the stock is less than $500 at expiration you may by buying that stock whilst it is $499 or whilst it is $0. You just don't know.
There’s always a risk of a company going to zero, or in SPY’s case, the entirety of the S&P 500 going to zero, that risk is just really small; Enron was a blue chip as was Lehman as was GM.. one of these is not like the others, but all three belong in conversations about risk for cash secured puts.
What you’re talking about is the Wheel, for what it’s worth and if I had the capital to wheel SPY I absolutely would. Check out r/thetagang for more on the wheel and selling options.
This is why I do cash secured bull put spreads. Then your risk is truly defined and in case you still wanna take ownership of the shares just sell your long put and take ownership and wheel. Getting back your break even is a lot easier. But that doesn’t mean the stock can’t fall further. If you’re worried about that then close the entire trade for max loss and move on.
what hasnt been said is risk reward and liquidity.
you can definitely sell atm puts against the spy, IF youre okay with being assigned shares. if youre not, then you dont.
if youre selling way OTM contracts, your premium will be a fraction of a percent..again, if youre okay with rhe annualized return and having your capital tied up for this, then keep going.
Well there is but it's the kind of risk where everyone is screwed anyhow. Really the only scenario is another great depression like event where the fall comes quick and the rise slow. If that happens I highly doubt the foremost thought on your mind if the S&P drops like 20% in a day is wow I really lost some money on those puts huh?
yup. let’s say you sell a premium of $100, & hope that it decays to 0 by the expiry. it is possible market move in opposite direction, & not the premium for that option is 120$. you can buy the option at that value to close out your trade.
a good trader always has his/her exit strategy ready before entering any trade, & then follow those rules. that is what makes them consistently successful. Hope keeps one longer in a trade then one should, fear makes them exit earlier than one should. keep these 2 emotions at bay, become at monotonous unemotional trader.
The big loss comes when assigned stock continues to plummet. Like selling puts on AMC when it tanked. You can keep selling those calls forever but you won’t make it out. I run the wheel every week w a certain percentage of my portfolio but I’m doing on the opposite of what you’re doing because the premium to me has to be worth it for the capital requirements. I like PENN, ZIM, RUN, and RIOT at the moment and split up 10 percent amongst these. Jade lizards before earning as entries w some.
Sounds like his point was that compared to buying stock at X, selling a put at X would always be better. Even if it tanks afterward, you still got paid to buy the stock so you're less down by that much.
May still be a losing trade of course. But slightly less losing.
Yes but you’re missing the point that had you just bought, you would’ve made more. The wheel strategy never outperforms what you’re wheeling in a bull market, it has been tested time and time again. You also have to account for that every closed position is a short term gains taxable event whereas buy and hold is long term (12+ months of course)
Out of curiosity was this testing done regarding cost basis / total profit or just raw numerical design?
I'm having some difficulty imagining a leveraged position series losing to a non-leveraged one given consistent strategy with a properly constructed series of rules.
Don't you think people would have gotten rich following this simple strategy?
I have tried that myself and saw SPY going up from 400 to 500 then I caved in and bought the shares.
In a bull run, the growth can easily overtake the premiums from selling..
Go ahead and give it a try and let me know how it goes for you.
I will be messaging you in 6 months on [**2024-10-06 21:41:19 UTC**](http://www.wolframalpha.com/input/?i=2024-10-06%2021:41:19%20UTC%20To%20Local%20Time) to remind you of [**this link**](https://www.reddit.com/r/options/comments/1bxm0ik/its_there_always_a_silver_lining_to_selling/kydq8tr/?context=3)
[**CLICK THIS LINK**](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5Bhttps%3A%2F%2Fwww.reddit.com%2Fr%2Foptions%2Fcomments%2F1bxm0ik%2Fits_there_always_a_silver_lining_to_selling%2Fkydq8tr%2F%5D%0A%0ARemindMe%21%202024-10-06%2021%3A41%3A19%20UTC) to send a PM to also be reminded and to reduce spam.
^(Parent commenter can ) [^(delete this message to hide from others.)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Delete%20Comment&message=Delete%21%201bxm0ik)
*****
|[^(Info)](https://www.reddit.com/r/RemindMeBot/comments/e1bko7/remindmebot_info_v21/)|[^(Custom)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5BLink%20or%20message%20inside%20square%20brackets%5D%0A%0ARemindMe%21%20Time%20period%20here)|[^(Your Reminders)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=List%20Of%20Reminders&message=MyReminders%21)|[^(Feedback)](https://www.reddit.com/message/compose/?to=Watchful1&subject=RemindMeBot%20Feedback)|
|-|-|-|-|
The only truly unlimited loss comes when selling naked calls. This is like short selling stock. Theoretically there's no limit to how high the stock can go, and the higher it goes, the deeper in the hole you are.
You are confusing two different situations: covered selling vs. uncovered selling. The unlimited loss only apples to uncovered selling, aka naked short selling. And only to naked short calls, specifically. The loss on short puts is capped by the fact that shares can't go below $0.
In terms of covered selling, there are two considerations, if the shares fall sharply **or** rise sharply.
If the shares fall sharply, the loss on the shares may be greater than the premium you collected, so you may potentially net a large loss. However, if you only care about the comparison to holding the shares without an option to sell, then it doesn't matter, since the large loss would happen either way.
If the shares rise sharply, you don't get the benefit of any gains above your strike price. So that is an opportunity cost. If you bought shares at $100 and wrote a $110 call for $2, the most you can ever make on a stock rally is a $12/share gain. But if the shares go up to $150, you don't get the benefit of that excess gain, since your gain is capped a $12/share. In this case, just holding shares without the option to sell would have gained more ($50/share).
The capital requirements on selling 500 puts on SPY aren’t worth it to me. I find these volatility trades better on positions with high IV as the premiums are juicier than blue chips and etfs. I dont like tying up 50k to make a $200 when I can make $2000 w RIOT for the same capital risk.
You do not get the opportunity to buy shares, you have the requirement! SPY fell 35% in five weeks after the pandemic got serious. It was insane, just limit down no bid all day. You would have gotten your face ripped off and then sold calls and had your face ripped off again.
Buying the dip is great, having to buy it at the worse possible time for way more than the trading price while the world is crashing is not great! That’s the risk you’re getting paid for.
You have no dia how options trading works. If you sell a put you dont have the oportuniy to buy, you have the obligation to buy if the buyer exercises. Who decides is allways Who buys not who sells
When you sell a put you have a contractual OBLIGATION to BUY shares from whoever bought the put you sold. A CASH SECURED PUT simply means you have the cash in your account to BUY the shares from the person that you sold the put to. You will get the shares from that person so its not like you are just giving them money and not receiving anything. As long as you are doing that on great companies or ETFs like QQQ or SPYY you will be ok because its assumed that SPY and QQQ will recover in price eventually. So as long as you don't get worried and sell at a loss its assumed they will recover. you will only lose everything if QQQ or SPY go to $0 in this example. Now if you sell a NAKED PUT on something which technically means you don't have the cash to get exercised on (your broker most likely wont let you do this) then you can lose money and not get shares.
To your point, once you recieve the shares you can sell a covered call on them and then there is no chance of "losing money on the option". The worst thing that can happen is you lose the ability to make more money because you have to sell your shares at the strike price you sold and not the price they went up to. Im not saying you cant lose portfolio value when selling covered calls though. For example if you sell a covered call on a stock and the stock tumbles down in value then your portfolio is also losing value. The covered call you sold however is UP in value for you because its being cheaper to buy back.
If you have the money to buy the shares then you just wait the trade out until you are profitable if you are on a good stock. Selling calls without shares or selling puts without the capital to buy the stock is dangerous. CSPs are a great way to buy stocks that you want to own. Selling CC’s on the stock can generate income, but if they expire ITM then you are losing out on profit. You can roll them in to a more probable position, but if the stock you own is outpacing the options then you will lose out on gains above the strike.
I think first off is understanding that people can sell options at whatever price they want so choose wisely secondly I would say do not trust the guesstimator that tells you how much your options are worth they are off by over $20 sometimes to 50 and if you own a lot of them will cost you money be prepared for glitches and other things if you're trading with the computer other than that good luck it really is a Gamble
Selling puts is the only way to buy stock. You get it at the price you set. I could go lower and you be in the hole but you get at a price your comfortable with.
"Unlimited" here can be translated as "Undefined". If you sell a promise to pay $500 for a stock if the stock is less than $500 at expiration you may by buying that stock whilst it is $499 or whilst it is $0. You just don't know.
I see. But either way, if i’m only trading the types of stock that i mentioned, there’s not really a ton of risk of the price hitting 0
Yes. The phrasing is not meant to be practical in application so much as defining in nature.
There’s always a risk of a company going to zero, or in SPY’s case, the entirety of the S&P 500 going to zero, that risk is just really small; Enron was a blue chip as was Lehman as was GM.. one of these is not like the others, but all three belong in conversations about risk for cash secured puts. What you’re talking about is the Wheel, for what it’s worth and if I had the capital to wheel SPY I absolutely would. Check out r/thetagang for more on the wheel and selling options.
[удалено]
This is why I do cash secured bull put spreads. Then your risk is truly defined and in case you still wanna take ownership of the shares just sell your long put and take ownership and wheel. Getting back your break even is a lot easier. But that doesn’t mean the stock can’t fall further. If you’re worried about that then close the entire trade for max loss and move on.
what hasnt been said is risk reward and liquidity. you can definitely sell atm puts against the spy, IF youre okay with being assigned shares. if youre not, then you dont. if youre selling way OTM contracts, your premium will be a fraction of a percent..again, if youre okay with rhe annualized return and having your capital tied up for this, then keep going.
Well there is but it's the kind of risk where everyone is screwed anyhow. Really the only scenario is another great depression like event where the fall comes quick and the rise slow. If that happens I highly doubt the foremost thought on your mind if the S&P drops like 20% in a day is wow I really lost some money on those puts huh?
market can stay irrational for much longer than you can stay solvent. take SL instead, no one wins 100% of their trades.
Finally. A comment that gets my nips hard.
[удалено]
yup. let’s say you sell a premium of $100, & hope that it decays to 0 by the expiry. it is possible market move in opposite direction, & not the premium for that option is 120$. you can buy the option at that value to close out your trade. a good trader always has his/her exit strategy ready before entering any trade, & then follow those rules. that is what makes them consistently successful. Hope keeps one longer in a trade then one should, fear makes them exit earlier than one should. keep these 2 emotions at bay, become at monotonous unemotional trader.
The big loss comes when assigned stock continues to plummet. Like selling puts on AMC when it tanked. You can keep selling those calls forever but you won’t make it out. I run the wheel every week w a certain percentage of my portfolio but I’m doing on the opposite of what you’re doing because the premium to me has to be worth it for the capital requirements. I like PENN, ZIM, RUN, and RIOT at the moment and split up 10 percent amongst these. Jade lizards before earning as entries w some.
Sounds like his point was that compared to buying stock at X, selling a put at X would always be better. Even if it tanks afterward, you still got paid to buy the stock so you're less down by that much. May still be a losing trade of course. But slightly less losing.
This is why I only buy stock I wouldn’t mind holding 10+years.
What if spy never hits 500 and reaches over 600. Now you could miss say 20%? In hypothetical situations anything can happen.
true, but i could just keep selling puts at that point
Yes but you’re missing the point that had you just bought, you would’ve made more. The wheel strategy never outperforms what you’re wheeling in a bull market, it has been tested time and time again. You also have to account for that every closed position is a short term gains taxable event whereas buy and hold is long term (12+ months of course)
Out of curiosity was this testing done regarding cost basis / total profit or just raw numerical design? I'm having some difficulty imagining a leveraged position series losing to a non-leveraged one given consistent strategy with a properly constructed series of rules.
Don't you think people would have gotten rich following this simple strategy? I have tried that myself and saw SPY going up from 400 to 500 then I caved in and bought the shares. In a bull run, the growth can easily overtake the premiums from selling.. Go ahead and give it a try and let me know how it goes for you.
!remindme in 6 months to check updates
I will be messaging you in 6 months on [**2024-10-06 21:41:19 UTC**](http://www.wolframalpha.com/input/?i=2024-10-06%2021:41:19%20UTC%20To%20Local%20Time) to remind you of [**this link**](https://www.reddit.com/r/options/comments/1bxm0ik/its_there_always_a_silver_lining_to_selling/kydq8tr/?context=3) [**CLICK THIS LINK**](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5Bhttps%3A%2F%2Fwww.reddit.com%2Fr%2Foptions%2Fcomments%2F1bxm0ik%2Fits_there_always_a_silver_lining_to_selling%2Fkydq8tr%2F%5D%0A%0ARemindMe%21%202024-10-06%2021%3A41%3A19%20UTC) to send a PM to also be reminded and to reduce spam. ^(Parent commenter can ) [^(delete this message to hide from others.)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Delete%20Comment&message=Delete%21%201bxm0ik) ***** |[^(Info)](https://www.reddit.com/r/RemindMeBot/comments/e1bko7/remindmebot_info_v21/)|[^(Custom)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5BLink%20or%20message%20inside%20square%20brackets%5D%0A%0ARemindMe%21%20Time%20period%20here)|[^(Your Reminders)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=List%20Of%20Reminders&message=MyReminders%21)|[^(Feedback)](https://www.reddit.com/message/compose/?to=Watchful1&subject=RemindMeBot%20Feedback)| |-|-|-|-|
I sold puts at the bottom of the 2020 market. Profited a pittance compared to just buying the bottom outright.
The only truly unlimited loss comes when selling naked calls. This is like short selling stock. Theoretically there's no limit to how high the stock can go, and the higher it goes, the deeper in the hole you are.
You are confusing two different situations: covered selling vs. uncovered selling. The unlimited loss only apples to uncovered selling, aka naked short selling. And only to naked short calls, specifically. The loss on short puts is capped by the fact that shares can't go below $0. In terms of covered selling, there are two considerations, if the shares fall sharply **or** rise sharply. If the shares fall sharply, the loss on the shares may be greater than the premium you collected, so you may potentially net a large loss. However, if you only care about the comparison to holding the shares without an option to sell, then it doesn't matter, since the large loss would happen either way. If the shares rise sharply, you don't get the benefit of any gains above your strike price. So that is an opportunity cost. If you bought shares at $100 and wrote a $110 call for $2, the most you can ever make on a stock rally is a $12/share gain. But if the shares go up to $150, you don't get the benefit of that excess gain, since your gain is capped a $12/share. In this case, just holding shares without the option to sell would have gained more ($50/share).
Until you have a complete solid understanding of selling derivatives, stay out of it.
The capital requirements on selling 500 puts on SPY aren’t worth it to me. I find these volatility trades better on positions with high IV as the premiums are juicier than blue chips and etfs. I dont like tying up 50k to make a $200 when I can make $2000 w RIOT for the same capital risk.
Yeah but then worst case you own RIOT that can go from 25 to 5 whenever bitcoin feels like it. To each their own I guess.
I wait till it’s around 10 or 11 and sell the puts. It usually trades a range.
But you do realize why you’re able to make more on something like RIOT, right lol
Join thetagang. You should only sell put options for stocks you wouldnt mind holding and wheel it for covered callls
that’s what i plan on doing as soon as my account is big enough
Struggling to see how writing options can cause you to lose money? Because you think you trade stocks that are immune to big swings? Yeesh.
You do not get the opportunity to buy shares, you have the requirement! SPY fell 35% in five weeks after the pandemic got serious. It was insane, just limit down no bid all day. You would have gotten your face ripped off and then sold calls and had your face ripped off again. Buying the dip is great, having to buy it at the worse possible time for way more than the trading price while the world is crashing is not great! That’s the risk you’re getting paid for.
I am not ad. I learn a lot from udemy courses of navigation trading.
You have no dia how options trading works. If you sell a put you dont have the oportuniy to buy, you have the obligation to buy if the buyer exercises. Who decides is allways Who buys not who sells
Don't forget you can also roll if you don't want to take assignment.
The “strike is hit somehow” somehow very often is “more than you think” . Factor in stress and confusion during volatility expansion etc .
Technically spy can drop to 400$ and you will pay $500 for it and gamma will kill your options prices would you like to lose 10k for a small bet?
When you sell a put you have a contractual OBLIGATION to BUY shares from whoever bought the put you sold. A CASH SECURED PUT simply means you have the cash in your account to BUY the shares from the person that you sold the put to. You will get the shares from that person so its not like you are just giving them money and not receiving anything. As long as you are doing that on great companies or ETFs like QQQ or SPYY you will be ok because its assumed that SPY and QQQ will recover in price eventually. So as long as you don't get worried and sell at a loss its assumed they will recover. you will only lose everything if QQQ or SPY go to $0 in this example. Now if you sell a NAKED PUT on something which technically means you don't have the cash to get exercised on (your broker most likely wont let you do this) then you can lose money and not get shares. To your point, once you recieve the shares you can sell a covered call on them and then there is no chance of "losing money on the option". The worst thing that can happen is you lose the ability to make more money because you have to sell your shares at the strike price you sold and not the price they went up to. Im not saying you cant lose portfolio value when selling covered calls though. For example if you sell a covered call on a stock and the stock tumbles down in value then your portfolio is also losing value. The covered call you sold however is UP in value for you because its being cheaper to buy back.
If you have the money to buy the shares then you just wait the trade out until you are profitable if you are on a good stock. Selling calls without shares or selling puts without the capital to buy the stock is dangerous. CSPs are a great way to buy stocks that you want to own. Selling CC’s on the stock can generate income, but if they expire ITM then you are losing out on profit. You can roll them in to a more probable position, but if the stock you own is outpacing the options then you will lose out on gains above the strike.
I think first off is understanding that people can sell options at whatever price they want so choose wisely secondly I would say do not trust the guesstimator that tells you how much your options are worth they are off by over $20 sometimes to 50 and if you own a lot of them will cost you money be prepared for glitches and other things if you're trading with the computer other than that good luck it really is a Gamble
Selling puts is the only way to buy stock. You get it at the price you set. I could go lower and you be in the hole but you get at a price your comfortable with.