Originally Posted by
JamesBond
It is difficult for me to get my head around what a reasonable spread is. The one I put on has a $100 spread less the $31 premium, but in order to see any real money it seems that you have to put on a LOT of contracts, an then the danger zone can leave you open to having all those contracts assigned but then not being stopped at the bottom. The worst possible scenario would be to have the stock price at $2901 on expiration day which means you have to buy $1.5 million worth of AMZN and it is already underwater. Yeah I know... you have to watch it to know when to fold up your tent. But like I said, that is the part I am having a hard time getting my head around, especially with a big dollar stock and the volatility it can have from time to time. But again, thanks for the discussion. The brain exercise does give me something to think about anyway. I am just not sure if this method is right for me.
One other thing. On this spread, the leverage percentage gain is a LOT better than straight put selling. However, one does not use percentage to buy things.
Have a great Christmas amigo.
I actually look at ROI like that. If I’m risking $10k for $3k in premium that’s yields me 30% return on the money at risk.
For a naked put that risks $300k for $7k it yields 2.3% return on the money at risk.
I should have given an example as to why this is a no brainer to me. However, if your goal is in terms of absolute $ you will never beat “going naked”.