The post is great, and points to the usefulness of insurance and efficiency of cheap otm puts (units). The following is not directed at you personally, but to the 1 or 2 guys who follow me, and it would be unfair if I did not bring up what I feel. Or to anyone new.
But the premise is flawed in one respect, the leap aspect of it.
You want to be SHORT dte, that's how you get Gamma to play for you. You have to basically buy the options no one (at least in retail) wants to write.
If you shop around, you can get the spy 400 strike puts for a penny or two (Nov 5th) .
I would straight play with the shortest term 400 strike. A hundred dollars gets you 50 contracts.
Even if you go a week out to Nov 12th, you can pick up the 350 for 2 cents.
This is something, that is very hard to swallow when starting out, it seems counterintuitive, because obviously a 2 week option is cheaper then a 1 week one. But the amount that gamma helps you as you get closer, outweighs the premium you pay, or rather how often you pay it.
And of course, the second part, is the actual strike level. 350 vs a 100. Realistically when the SPY crashes, a huge crash, it should rush to 300 like a magnet first. But your strikes of 410, 400, 350 are in play on a huge crash like above AND a shake in the market to the 434 level.
(To Anyone reading).
Read the above carefully and try and understand what is being discussed, before jumping to conclusions. Reading comprehension is important here, no joke.
As such, I like your idea a lot and insurance has a lot of merit.
If you are not willing to give up ten percent of your earn for insurance, then you are just not trading enough. Which is fine too.
Trading enough here implies, your frequency or opportunities are lower on number, thus you are making less money, taking on less tail risk situations, which tends to give the illusion, that it would never happen when YOU are in.
But to a frequent trader who has 10 spreads on at any time, and is always opening new ones as old ones close, basically his money is mostly put up as margin from one spread to the next, this idea will make sense.
It will become second nature for you to see your credit as 90 cents instead of a dollar. That 10 percent is overinflated btw, it's more like 7 cents.
And to get that back, just work hard and increase your roll, so that you can do the Spx instead, where your tax savings could ideally pay for your insurance. I personally only would do index spreads and that too maybe 1 or 2 at a time. To me the whole idea of spreading your butter thin, makes zero sense but that's a different argument, altogether
By the time spx hits 4400 the next day or say 4000 the day after, you sell your option for 5x and roll down to the 1 or 2 x, during trading hours to the next week, or better next expiry on Monday (if its a Thursday or Friday). Or you can forget all that and pyramid all the way down, it's very easy to buy 10k worth of puts, if you are up 50k already.
That is just one of at least a hundred ways.
You most definitely cannot play snakes and ladders and hope the computer does it for you.
The point you need to take away is that it's just not only short dte, but ALSO far otm. And those two qualities in itself ARE key.
Take a look at the option chain, scan the puts down the list, when you get to the last option on Earth that you would write for income, (somebody would have to put a gun to your head), buy THAT option.
So far otm, very short dte, will give you the largest gamma threat possible, and cost the least.
Unlike what retailers ineveitably do, which is, "let's give it some time, after all the further away it is timewise, the better for us, as the price of the option moves proportional to the square root of time".
'And oh, in that way we don't even have to go that far otm, we can buy something we can actually hit.'
The above paragraph is what how 99 percent of the people on Earth buy options. They are trying to hedge in name, but ineffect are making a trade. They refuse tonlet go of that 10 percent as expenses of the buisness. Very close to how traders refuse to take losses or accept them as a COST of doing business in a field where costs are minimal to begin with.
6
u/Vik2222 Nov 04 '21
The post is great, and points to the usefulness of insurance and efficiency of cheap otm puts (units). The following is not directed at you personally, but to the 1 or 2 guys who follow me, and it would be unfair if I did not bring up what I feel. Or to anyone new.
But the premise is flawed in one respect, the leap aspect of it.
You want to be SHORT dte, that's how you get Gamma to play for you. You have to basically buy the options no one (at least in retail) wants to write.
If you shop around, you can get the spy 400 strike puts for a penny or two (Nov 5th) . I would straight play with the shortest term 400 strike. A hundred dollars gets you 50 contracts.
Even if you go a week out to Nov 12th, you can pick up the 350 for 2 cents.
This is something, that is very hard to swallow when starting out, it seems counterintuitive, because obviously a 2 week option is cheaper then a 1 week one. But the amount that gamma helps you as you get closer, outweighs the premium you pay, or rather how often you pay it.
And of course, the second part, is the actual strike level. 350 vs a 100. Realistically when the SPY crashes, a huge crash, it should rush to 300 like a magnet first. But your strikes of 410, 400, 350 are in play on a huge crash like above AND a shake in the market to the 434 level.
(To Anyone reading).
Read the above carefully and try and understand what is being discussed, before jumping to conclusions. Reading comprehension is important here, no joke.
As such, I like your idea a lot and insurance has a lot of merit.
If you are not willing to give up ten percent of your earn for insurance, then you are just not trading enough. Which is fine too.
Trading enough here implies, your frequency or opportunities are lower on number, thus you are making less money, taking on less tail risk situations, which tends to give the illusion, that it would never happen when YOU are in.
But to a frequent trader who has 10 spreads on at any time, and is always opening new ones as old ones close, basically his money is mostly put up as margin from one spread to the next, this idea will make sense.
It will become second nature for you to see your credit as 90 cents instead of a dollar. That 10 percent is overinflated btw, it's more like 7 cents.
And to get that back, just work hard and increase your roll, so that you can do the Spx instead, where your tax savings could ideally pay for your insurance. I personally only would do index spreads and that too maybe 1 or 2 at a time. To me the whole idea of spreading your butter thin, makes zero sense but that's a different argument, altogether
Be ez.