^ if treasuries went to zero, chinese bonds will have been at zero for months, and every financial asset would be virtually worthless. if this is the only risk you are worried about, you might as well see what a shotgun tastes like.
Yes, this illustrates is how Americans justify their irrational behavior of ignoring the risk/return profile on those junk bonds “but if treasuries go, everything goes”. Wrong, the world carries on, but you lose all/most your money.
Not sure if anyone brought up this basic point, but the put will only get assigned at expiration. If you want the stock at a certain price… put in the limit order. If you want to collect premiums, then your “would buy it price” makes a good strike, but then commit to collecting premiums. I think they would be two totally different strategies.
If you want to own the stock, you will miss out on profit by waiting for the put to get assigned… if it even does at all. The price could dip down to your goal price and then go back up by expiration. In that case you probably have missed out big … you got your dinky premium, but look what you would have made on being filled with the limit order.
However, if ownership is not your goal, writing puts and collecting premiums is best. Then if you do happen to get assigned you can keep playing the premium collecting game writing calls trying to get rid of the holding. If not, keep writing puts. Pick ONE… you want the stock… OR you don’t really believe in ownership but think the price action will be playable.
i sincerely think you don’t know how the financial system works. every bank and every pension fund in the world would be beyond insolvent if treasuries even lost 30% of their value in aggregate. it would be the most deflationary or hyperinflationary event to ever occur in human history. this is why this event is actually basically impossible. what would these treasury sellers be buying? it certainly wouldn’t be the equity, bonds or cash of any other country. they’d literally start to buy dirt or air because every tradeable real asset would be bid up by infinity percent.
were not alive in 2008? did you not see just a mere 7 years ago how correlated virtually every asset on the planet is? if the world’s risk free, safe haven asset went to zero, what do you think would happen to other assets. the fact that you even worry about a possibility of treasuries going to zero, instead of real risks that are actually possible, i don’t know, i can’t even say anything.
Remember when it looked like the US was going to defalt on its treasuries because the Republicans in Congress were going to force it? Remember what happened? Treasury prices went UP!
Why was this? Because people sensing crisis pulled their assets out of riskier (i.e. anything with a beta) things and put it - en masse - into the safest thing they could find, which still happened to be USD. It was no longer a risk free asset. It was just the least risky asset that had any liquidity.
Yes, people want to diversify out of USD, but 1) that’s not the same as having 0% USD, and 2) no one has figured out any other asset that has the liquidity to take its place. I know purealpha thinks that CNY is the answer, and no doubt CNY will benefit as long as the process is gradual and smooth, but what would the Chinese economy look like if suddenly no one could afford to buy its exports because the USD was dead (and took Europe with it).
Let’s reel this in as it’s way off topic…
Put writing is cool! But, people overestimate some tail risks (CN) while underestimating others (US), due to biases. It’s important to understand this when writing puts. Sell expensive deep out of money puts to people who overestimate tail risk, not to people who underestimate it. Obviously always model catastrophic losses and make sure you can endure; this stuff is just probabilities, you might be right that the market has overestimated tail risk and unlucky in that it still manifests.
My trade was bitchin – CN just cut rates on Saturday, they do their 5-yr plan next week, RMB gets added by IMF to SDR. String of good news coming off horrible expectations, market goes up or flat, I collect my 6% premium on ASHR, and the chumps kick themselves for paying so much for insurance. 
I feel like I owe brain_wash_your_face some money for his idea?
Killing it in the puts writing biznez – Oct30 ASHR puts expired worthless, immediately wrote Nov27 and now with the bull market those will likely expire worthless too, and the Apr 2016 ones I wrote looking good could close those out at a big profit now if desired. This game might be up though, OTM put prices are dropping fast, and I’m not a dipshit enough to write ATM at this fair index level.
Oh and I have a S&PMini naked call at 2100 for Nov30 that I may get assigned (hard to say at this point), short going into fed meeting. Damn this stuff is fun, it’s really all about calendars and global macro events, not so much about mathy greek stuff.
Good job, you might make 5% this year on that strategy and you’re just exposed to huge tail risk. No biggy. Honestly? I’ve done well with covered calls on a bunch of my dividend holdings (which is the same as writing a put as discussed). Works well in sideways markets. These are stocks I’d be holding anyway so I’m not worried about downside risk as much, but the extra yield has been nice in stagnant markets.
i made 53% on one stock in one week with completely borrowed money. and then i made 20% on fixed income securities in the 2 weeks following. infinite returns biatches! enjoy your 5%.
As geo alluded to, simply a negatively skewed strategy that many finqncial shysters have tried to sell since the beginning of time. Oh, you think you’re generating alpha. It feels good. Might as well implement a Martingale system at the blackjack table. Just hope you quit before you hit the table limit. Disappointing to see somebody boasting about it on a CFA board.
Nothing like the opportunity to lose 100% of your investment to get the adrenaline pumping, eh??
Purealpha’s future monthly return profile: 4% 5% 3% 6% 7% Black swan -666% Bank seizes house, moves in with Rahul Roy. I’m giving you a tough time, but I hope you know what you’re really playing with by doing what you’re doing.
ftfy.
Selling puts is the #1 strategy of people who are new to option trading. Every single new person who starts at a market making firm does this. The steady returns are very compelling. However, all veterans have lost money on trades like this, and generally shift to more rounded strategies.
I remember in my finance 101 class this guest speaker was boasting about the best strategy in the market is to sell puts and roll the option if it goes against you. His theory was that that market always rises in the long-term so eventually you’ll come out ahead.
To this day I still remember my 19-year old self thinking, this jackass is a total idiot. Wonder what happened to him in 2008
Yes, it is no biggie. Let’s break it down for you noobs… Ahh I see, exposed to “huge tail risk” that the S&P500 shoots to 2300, 24X P/E, with no earnings growth in sight, and never comes back down even once to close the short out, which results in a 10% loss, partially offset by my income of 5%, for a “huge tail risk” of 5% loss. Honestly? Do you guys even think this stuff thru? Base case - good money in a sideways market, nothing dramatic happens, I beat index. High case - a strong spike down sometime during the year when I close out all shorts and buy assets cheap, I slaughter index with higher returns and less volatility. Low case - the S&P shoots up, in this case I am NOT exposed to “huge tail risk” for the reasons I detailed above AND because I am currently net long (as of today’s US allocation: 100% long US equities, 66% short S&PMini Futures), moving to market-neutral by year end, and perhaps crossing into net-short by next year. Yes, I could slightly underperform in the low case, though I also have international equities that might offset. But yes, I also figured it at around 5% income for 2016, plus profit on the shorts when they get closed during market shocks, plus long portfolio gains. There’s always a best strategy for any given market; I’m doing it. 
Covered call writing is certainly not the same as covered put writing in our current environment. There is low probability the S&P shoots into the heavens, but there is fairly decent probability the bubble corrects, perhaps as soon as Dec 16th. Writing covered calls in THIS market is truly “picking up pennies in front of the steam roller”. Writing covered puts is a hedge, plus income. Options are no different than any other investment, you make money because you can read the market better than the other participants. Master strategist here. I just keep killing it, and you guys keeps saying “oh but one day”. Bwahahaha
You’re writing puts against a short, that’s different than just writing puts. You didn’t disclose that in the post I had referenced. I’m assuming that because you’re killing it on the puts, you’re losing on your shorts.
Yeah, you guys are always assuming I’m doing the absolute most stupid thing imaginable.
In CN they are naked way OTM puts to add to my longs, in the US they are covered puts hedging my longs. The CN ones are killing it. In the US the normal outcome of this strategy is drifting higher markets, unrealized losses on shorts, until eventual market shocks close out shorts, for example Dec15th is the next most likely shock event (if one doesn’t expect slight unrealized losses, they shouldn’t do this strategy).
Sure, send me some good vibes.
Well, my slow grinding down of the S&P500 continues, somehow I got away with selling the same call twice…
Sold ES Nov30 2100 calls @ $10 to accumulate more shorts awhile back, market shocked down on 11/16 and they were nearly worthless so closed the position thinking “you just never know with this schizo market, it might go back up before expiration”. Well, sure enough, sold them @ $10 again today. And when market was down half my ES puts got exercised.
Grinding away, doing my part to correct the absurd 23X valuation!! 
Now net short going into the rate hike. It’s hard to imagine it’s going to hold at or above this Friday’s 2090 level before the decision. Fed fund futures imply the market expects an increase, but I don’t believe for a second they have it priced it. Probably last minute they freak “OMG it really might happen!”.