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Monday, August 01, 2005

Update: About Options Trading, Implied Volatility

Roger Nusbaum has also commented the Barron's Striking Price column:
This week's Striking Price column profiled a do-it-yourselfer who very successfully maintains an account with 10-12 positions of naked puts.

The article devoted a little space to the what can go wrong part of this strategy but I would have like to have seen a little more. I don't doubt the success of the investor profiled but the way the article was written it made it seem like he was taking a tremendous amount of risk by way of being over leveraged.

The downside of this is a drop in the market. If the market goes down by 3% a $500,000 account would go down in value by $15,000. That same $15,000 hit to a leveraged $100,000 portfolio is obviously a 15% hit.
This is quite much what I wanted to say. I don't doubt that it's possible to earn money by selling naked puts, but you really must be at home with options and trading. And you have to have a good money management to survive.

Read further:
Random Roger's Big Picture: Barron's And Naked Puts

See also:
About Options Trading, Implied Volatility


Blogger Roger Nusbaum said...

One thing I did not mention is I do think there is a way to use this strategy.

Lets say an investor has a 10% cash allocation for a $500,000 portfolio. The investor might earn 2% interest on that cash. Selling a couple of puts here or there a few times a year that committed the investor to $30,000 or so worth of stock might be worth examining. What I have in mind strategically is effectively increasing the "interest rate" on the cash from 2% to maybe 5% or 6%.

In a given year the idea may or may not work but clearly this strategy would not be overleveraged. Thanks for the link to my site. Take care.

8/02/2005 09:42:00 AM  
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Anonymous PENNY STOCKS said...

VIX is the best measuremant of volatility.

12/03/2012 02:51:00 PM  

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