Originally Posted by
mispoken
love the idea; selling the Jan $3050 is great but it takes up so much buying power, I’d probably buy the $2900 long put. This spread yields $3k in premium.
Selling the $3050 uses $300k in buying power. Selling the 2900/3050 uses $12k in buying power.
$5k in premium for $300k buying power usage or $3k for $12k in buying power? It’s a personal choice, but I do strive for some semblance of an efficient use of capital and premium vs buying power usage.
Agree with you completely:
When using spreads you can accomplish three things.
Efficient use of capital: Reducing that 300K to 12K while having the ability to make 60% of the gain allows many more trades.
Capped Risk: Despite arguments to the contrary naked options can empty your account unless you are in front of the computer twenty four hours per day with your finger on the exit trigger.
Non directional plays: You can use condors, etc. to spread both sides of the price and make substantial gains while the market goes nowhere.
Naked options use too much capital for too little gain compared to limited risk plays. 10% per month is very doable with Condors.