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I. Advantages of Selling Puts
A. Applies to Selling Naked Puts (On Margin)
1. In a taxable account, leverage can be used by investing via margin, which enables a significantly lower initial investment than for either a cash-secured put position or a covered call.
2. In a taxable account, if margin is used, no margin interest is involved.
B. Applies to Both Naked Puts and Cash-Secured Puts
1. Primarily as result of the cognitive bias known as 'loss aversion' (or fear factor), the implied volatility of the put option (IV-Puts) will often be somewhat higher than the implied volatility for its counterpart call option (IV-Calls) and thus offers a somewhat higher potential return-on-investment(ROI) %. Note: 'Loss aversion' is the tendency for people to have a stronger preference for avoiding losses compared with acquiring gains. Research has shown that losses can have as much as twice the psychological power as gains. It should be clearly understood however that any put-call parity deviations are normally relatively slight since any persistent substantial differences would present an arbitrage opportunity to be taken advantage of with a risk-free trade.
2. Slightly lower commissions – One transaction to establish a short put position, but two to establish a covered call position.
3. Earn money-market return on secured cash balances.
4. For OTM CSPs – lower initial investment provides somewhat higher potential ROI % if exercised.
5. Advantageous if want to buy a stock only if there is a price pullback.
A. Applies to Selling Naked Puts (On Margin)
1. In a taxable account, leverage can be used by investing via margin, which enables a significantly lower initial investment than for either a cash-secured put position or a covered call.
2. In a taxable account, if margin is used, no margin interest is involved.
B. Applies to Both Naked Puts and Cash-Secured Puts
1. Primarily as result of the cognitive bias known as 'loss aversion' (or fear factor), the implied volatility of the put option (IV-Puts) will often be somewhat higher than the implied volatility for its counterpart call option (IV-Calls) and thus offers a somewhat higher potential return-on-investment(ROI) %. Note: 'Loss aversion' is the tendency for people to have a stronger preference for avoiding losses compared with acquiring gains. Research has shown that losses can have as much as twice the psychological power as gains. It should be clearly understood however that any put-call parity deviations are normally relatively slight since any persistent substantial differences would present an arbitrage opportunity to be taken advantage of with a risk-free trade.
2. Slightly lower commissions – One transaction to establish a short put position, but two to establish a covered call position.
3. Earn money-market return on secured cash balances.
4. For OTM CSPs – lower initial investment provides somewhat higher potential ROI % if exercised.
5. Advantageous if want to buy a stock only if there is a price pullback.
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Corrections are usually over very quickly, and they're traditionally painless to long-term investors.
Experience is what you get, if you expect anything else!
Alles ist Zahl - die Vollkommenen --> 6; 28; 496; 8128; 33550336; 8589869056
Corrections are usually over very quickly, and they're traditionally painless to long-term investors.
Experience is what you get, if you expect anything else!
Alles ist Zahl - die Vollkommenen --> 6; 28; 496; 8128; 33550336; 8589869056
