![]() As you may remember, this involves selling an option on a stock you currently hold in your portfolio. We’ve discussed the process of writing a covered call before. This is known as a “spread” trade and can offer tremendous benefits depending on how it’s implemented. It essentially involves taking two option positions on the same stock. So today, let’s move beyond the basics and discuss an options strategy that’s a little more complex (but not too complicated). ![]() Some are riskier (or more complicated) than others. The truth is, there are many options strategies out there. We’ve even delved into some intricacies of these strategies and how traders can maximize their chances for success. We’ve also covered why some of the basic assumptions investors make about options (that they’re risky or complicated, for example) are not always correct. In the past, we’ve focused on how traders can do things like buy calls, sell covered calls, buy puts, or sell puts. As many of my readers know, my favorite option strategy is to sell out-of-the-money put credit spreads.We’ve covered some of the basic options strategies out there before. The win rate is very high, because we can make money even if the stock remains stagnant or even falls a modest amount. Furthermore, limiting the margin requirement by selling put spreads instead of naked puts substantially increases the trade's rate of return. The 2006 study states on pages 17 and 22-23 (emphasis added): Two academic studies - one from 2006 and a more recent one from 2012- ack up my opinion regarding the superiority of the put-selling option strategy, concluding that while many option strategies lose money, put selling is one of the few option strategies that outperforms a buy-and-hold stock portfolio. ![]() ![]() In agreement with previously presented results and prior literature, many option portfolios have risk-adjusted performance worse than the benchmark portfolio. However, some option portfolios exhibit risk-adjusted performance which exceeds that of the benchmark stock-only portfolio. When three-month options are used, written put portfolios for all moneyness levels (OTM, ATM, ITM) generate high returns and exhibit positive abnormal performance. Table 2 on page 27 of the 2006 study ranks option strategies in descending order of return and selling puts with fixed three-month or six-month expirations is the most profitable strategy. At fixed 12-month or longer expirations, buying call options is the most profitable, which makes sense since long-term call options benefit from unlimited upside and slow time decay. Below is an excerpted reproduction of the study's table 2 for options that have fixed three-month expirations during both 10-year and 22-year holding periods:Īnnualized Return: 10-Year Holding PeriodĪnnualized Return: 22-Year Holding Period This study supports my strategy of selling puts with 2- to 5-month expirations and buying LEAP call options with one year or longer expirations. I'm not surprised that selling puts is the most profitable options strategy, but I'm a bit surprised that selling in-the-money puts is the best strategy. This is probably because the study does not include the horribly bearish 2008-09 stock market period. #JIM FINK INVESTING HOW TO#If the study were updated today, I bet selling out-of-the-money puts would be the number one options strategy.ĭisclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.Table of Contents 7 Great Investing Books For Beginners – Morningstar How To Start Investing For Beginners – Nextadvisor With Time The Investing For Beginners Podcast – Your Path To Financial … Investing For Beginners: What First-time Investors Need To … How To Start Investing For Beginners – Nextadvisor With Time How To Invest In Stocks: A Beginner’s Guide For Getting Started A Complete Guide To Investing For Beginners – Resources & Tips The Investing For Beginners Podcast – Your Path To Financial … How To Invest In Stocks For Beginners – Us News Money Investing: A Beginner’s Guide – Corporate Finance Institute Investing For Beginners: An Ultimate Guide For 2022 – Mint – Intuit Investing For Beginners: Investing 101 – Good Financial Cents® How To Invest In Stocks: A Beginner’s Guide For Getting Started How To Invest In Stocks: Quick-start Guide For Beginners How To Start Investing In Stocks: A Beginner’s Guide How To Start Investing – Investing For Beginners – Fidelity 7 Great Investing Books For Beginners – Morningstar Investing For Beginners: What First-time Investors Need To … This is a great page to save in your notes for later on there are year’s worth of suggestions and guides that will take you through your journey. ![]() There are a great deal of wonderful investing books written by extremely effective financiers that are chock-full of useful pointers, informative details, and inside understanding on the world of Wall Street. ![]()
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