Get started

Shortput

EDUCATION: SPY SHORT PUT OR SPX SPREAD? PROS AND CONSPictured here is an SPX short put vertical I recently put on as an alternative to going SPY short put in cash secured environment. (See Post Below). When do one as opposed to the other and how should I manage each? First, let's compare the metrics of the two strategies, both of which are neutral to bullish assumption: they will make money at expiry if SPX/SPY goes up, sideways, or down, as long as it doesn't go so far down as to finish below the setup's break even. Currently, a "ten percenter" in the SPX November expiry (i.e., a spread paying at least 10% of its width) would be the 3080/3130, paying 5.00 even as of Friday close on a buying power effect of 45.00 ($4500), with a 3125 break even. The buying power effect is the same regardless of whether it's on margin or in a cash secured environment. A SPY short put with a similar break even (and therefore a similar probability of profit) would be the November 20th 315, paying 3.05 as of Friday's close with a break even of 311.95. Here, the buying power effect is different on margin versus cash secured. On margin, it should be approximately 20% of the short put strike or ~63.00 ($6300); in a cash secured environment, it is the short put strike (315) minus the credit received (3.05) or 311.95 ($31195). Buying Power Effect: On Margin: $4500 for the short put vertical, $6300 for the short put. Cash Secured: $4500 for the short put vertical, $31195 for the short put. Return on Capital: On Margin: 5.00/4500 = 10% for the short put vertical; 3.05/63.00 = 4.84% for the short put Cash Secured: 10% for the short put vertical; .98% for the short put. Given the expensiveness of going short put and the lower return on capital, why would I ever opt for that strategy over the short put vertical with its lower buying power effect and higher return on capital? 1. I am looking to acquire shares in the underlying, but don't want to reduce credit received by buying a long leg. In this particular example, I will never pick up shares via an SPX spread since it is cash settled.* 2. I am looking for flexibility in managing the strike price at which I'm potentially assigned shares. The short put can be rolled for additional credit, reducing cost basis further, or the strike improved via roll to change the strike price at which I'm assigned shares. The SPX spread won't roll well for a credit if tested. Trade Management: Short Put: Generally: Assuming a 45 day cycle, take profit at 50% max, take loss at 2 x credit received, or otherwise manage at 21 days until expiry (i.e., close out or roll out for a credit), whichever comes first. In cases where I'm looking to acquire shares in the underlying, however, I'm more likely to run the short put to approaching worthless, at which point it will be fairly clear that I'm not going to be acquiring shares in that cycle. There's little point in tying up buying power further to milk what little is left out of the option, particularly if there is oodles of time left until expiry. If it's in the money toward expiry, I compare and contrast whether I should roll out the short put "as is" for additional credit, versus allowing assignment of shares and then covering the shares with a short call. I generally go for the option that yields a higher credit. Short Put Vertical: Assuming a 45 day cycle, take profit at 50% max, take loss at 2 x credit received, or otherwise manage at 21 days until expiry (i.e., close out or roll for a credit), whichever comes first. * -- I can naturally sell a SPY spread and take on shares if the short put is broken which is another option to consider if I'm comfortable with and am able to take on shares at the short option leg price.
SP:SPX
by NaughtyPines
1
OPENING (IRA): GLD OCT/NOV/DEC 164/168/172 SHORT PUT LADDER... for a 5.69 credit total. Notes: Amazingly (or not), I have no gold in my retirement account. Although I feel I'm somewhat late to the game, taking up a position here in an instrument with excellent options liquidity. For smaller accounts, consider SLV, which also has the added benefit of having higher background implied (SLV: 69.4% versus GLD: 26.4%) or one of the miners (GDX, GDXJ). As with my other acquisitional setups, run to expiry/approaching worthless and if assigned shares, proceed to sell call against.
AMEX:GLD
by NaughtyPines
OPENING (IRA) (LATE POST): IWM OCTOBER 16TH 138 SHORT PUT... for a 1.98 credit. Notes: Another late post due to the number of "Update" posts I did yesterday. Instead of putting on my weekly 16 delta short put in SPY where expiry-specific implied is above 20, went with the more "frisky" IWM with expiry-specific implied at 30.8%. This will probably be the last broad market short put I deploy before the general elections. I want to have as much dry powder as possible in the event we have a sell-off or other high volatility event before or (more likely) after those.
AMEX:IWM
by NaughtyPines
1
OPENING (IRA): SPY AUGUST 28TH 280 SHORT PUT... for a 3.55 credit. Notes: Doing something a little more "programmatic" in the IRA by selling the 1 standard deviation/16 delta short put in the expiry nearest 45 days until expiry. Will take profit on approaching worthless or take assignment and sell calls against at the strike nearest the break even. This is naturally buying power heavy, but you can look to do the same basic trade in the smaller IWM or XLK, which has a three month correlation with SPY of .86.
AMEX:SPYLong
by NaughtyPines
OPENING (IRA): SPY SEPTEMBER 4TH 295 SHORT PUT... for a 3.45 credit. Notes: Sold the strike nearest the 16 delta. Meant to do this earlier in the week, but probably got distracted by a few earnings plays. Cost basis of 291.55 if assigned. Basically, looking to do this programmatically every week in the expiry nearest 45 days 'til expiry and then run it to expiry, at which time these will either (a) expire worthless; or (b) they'll be in the money, and I'll be assigned shares, at which point I'll proceed to cover with a short call at the strike nearest my cost basis (i.e., in this case, the 292).
AMEX:SPYLong
by NaughtyPines
2
OPENING: NKLA AUGUST 21ST 15 SHORT PUT... for a .90 credit. Metrics: Max Profit: $90 Max Loss: $1410 (assuming stock goes to zero) Break Even/Cost Basis in Shares: 14.10/share ROC% at Max as a Function of Notional Risk: 6.4% Notes: 30-day implied still high here, so doing something a little more risk adverse with a far out-of-the-money short put that still pays >5% ROC at max as a function of notional risk. Ridiculous that a 2.25 delta strike is paying that amount. The one minor downside: markets aren't the most liquid here; I got filled at .90 when markets were .10 wide. They've splayed out to .30 wide since ... .
NASDAQ:NKLALong
by NaughtyPines
THE WEEK AHEAD: MU, FDX EARNINGS; XOP, IWM, EWZEARNINGS: MU (36/64/11.7%) announces earnings on Monday after the close. Pictured here is a 19 delta short strangle in the July expiry, paying 1.55. FDX (46/59/11.4%) announces Tuesday after the close, with the 20 delta July 17th 115/147 paying 4.56. EXCHANGE-TRADED FUNDS ORDERED BY RANK AND SCREENED FOR 30-DAY >35%: EWW (59/44/12.6%) EWZ (47/63/17.7%) XLE (45/52/16.0%) GDXJ (43/60/17.7%) SMH (37/42/12.0%) GDX (36/45/14.5%) XOP (32/70/20.2%) USO (13/67/16.7%) Would probably go out to August here (54 days) ... . Looked at through the lens of what the short straddle is paying as a function of share price, it looks like I should be selling premium in XOP (20.2%), followed by EWZ (17.7%) and/or GDXJ (17.7%). BROAD MARKET ORDERED BY RANK: IWM (57/45/12.7%) QQQ (38/32/<10%) EFA (37/29/<10%) SPY (37/34/<10%) Small caps continue to be where the juice is at. IRA DIVIDEND-GENERATORS IYR (53/40/11.7%) XLU (50/33/<10%) EWZ (47/63/17.7%) EWA (46/40/11.2%) EFA (37/29/<10%) SPY (37/34/<10%) HYG (35/20/<10%) EMB (20/18/<10%) TLT (20/19/<10%) EWZ offers both better better premium as a function of stock price than IYR at the moment, as well as slightly higher yield (3.66% for the former; 3.50% for the latter). Since I've already laddered out IYR, I may dip at the EWZ well with the 16 delta short put paying .70 in August at the 22 strike, .84 in September at the 21 ... .
NASDAQ:MU
by NaughtyPines