Quote:
Originally Posted by Nightfyre
While I appreciate the sentiment, people being risk averse is why I am able to reap strong returns, and I find confidence in the ability to roll and the underlying prices I am selling versus the value of the company from a financial perspective.
My biggest risk is margin call, so I leave a healthy buying power buffer to absorb positions turning against me. I also ensure that I can take on any one position I enter with straight cash and vary expirations (to mitigate assignment risk). However, I will end up leveraged up to 4-5x underlying value by running multiple positions.
I accept that a catastrophic event like a -20-30% market-wide week might break me; however, if volatility is up, you can roll a lot further down to reduce margin requirements - plus my hope is that in that situation I can liquidate my vixy position to buy me enough breathing room to avoid forced liquidation and ruin.
The biggest trouble I have gotten into is when not sufficiently diversifying the sectors I am selling in. Admittedly, I haven't really experienced full leverage and full blown crisis yet, and this market has proven resilient, so rolling down and out has been effective in preventing losses. I have taken shares a handful of times - and generally sell calls at or above my price taken until they go away. I haven't lost money yet in any given position - but have incurred opportunity cost losses, if you will, from extending positions by rolling down and out.
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Sounds like a high leverage, high risk wheel strategy to a point. The goal is obviously to keep selling puts and avoid getting assigned. correct?
One question I get from people on varying trading strategies is if you are doing it full-time or working? Many of my strategies are designed to be useful from a time management perspective while also valuing risk management since I cannot watch the market all day in real-time. Many new traders are learning/reading about strategies that maybe can't be accomplished by someone with a full-time job.
Thank you for sharing.