Selling put options during low volatility: Worth the risk? // Writing put options, Trading options, selling option premium, option selling strategies, writing put options for income, selling put options for income, writing puts welcome to looking at the markets with David Moadel today's theme is are you
feeling lucky
there's an old Clint Eastwood movie a really good one where he asks are you
feeling lucky
and I've put up a picture of it's an old cliche but i think it holds true today
it's picking up pennies in front of a steamroller is it a good idea to pick up
pennies in front of a moving steamroller probably not a good idea but a lot of
people do it in the markets and in the options in the world of stocks and
options people do it all the time and I don't think they know that they're doing
it you see if you're going to sell options whether it's selling puts
selling calls selling put spreads call spreads iron condors straddle strangles
whatever you're selling
the time to do it believe it or not it is when volatility is high
not when volatility is low you see right now and today is the eighth of September
2016 and if you look at the bollinger bands they are squeezed about as tightly
as I've seen them squeezed in a long time and they've been tight for for
quite a while now and even if you ignore the Bollinger Bands you can see that
that and and this is the SP why the spiders chart which tracks the S&P 500
and you can see that it's been sideways with a slight upward drift for a long
time now
it's really within a tight range and that means that volatility is low the
market or the volatility that the Vics i should say is it's in the 12th right now
and that's pretty low yes it's gone lower than that historically it has but
12 is pretty low for the Vics and if you're thinking about selling puts calls
or any options
you're not going to get much money you're not going to get a big premium
for selling your calls and puts you're going to get very little money and that
goes back to picking up pennies in front of a steamroller what i mean by picking
up pennies is that the volatility component of the options prices is going
to be very low and what I mean by the steamroller
I mean that when the bollinger bands have been this tightly squeezed for so
long
the longer it's been squeezed the more likely a breakout is to happen in other
words if the bollinger bands have been very tight for a long time very close
together that means that a breakout is more and more likely to happen as time
goes on
so you're you're going to get very little money and you'll be taking on a
lot of risk if you sell options right now
alright so let's take a look at some actual option prices and again this is
for ticker SP why
let's say you wanted to go a month out ok so it's the eighth right now and
we're going to look at some october seven calls and puts and the market is
down a little bit now but not much
which is pretty typical of the price action lately and let's say you wanted
to sell some to 10 puts a month out
you would get less than a hundred dollars for that you would get around
between let's say 85 to 88 dollars per contract that's not very much for for
the next month
you you'd be locked into this contract if you held it to expiration
ok and of course you don't have to hold this kind of contract until expiration
but I'm just saying that theoretically you'd be in this contract for a month
for what for 85 86 maybe eighty eight bucks that's not a lot of money and
that's a 210
could it go below 210 it certainly could it easily could in the next month
thatthat's from $TIME to 18 22 10 that's a four percent pull back
so that's not a lot of protection here let's say you wanted to sell some calls
ok let's take a look let's look at some
222 calls
expiring one month out you would get a grand total of forty-four to 40-44 maybe
$45
and again that's that's if you held it until expiration for a month and could
it go above 222 in the next month of course it could it easily could
that's what 2% away less than 2%
so
now that this
this might be worth it if you would get more premium if it was a couple of
hundred dollars but for 44 45 bucks is it worth it
I don't think it is and that's just a couple of examples i could give you lots
more examples but no matter what stock you look at right now it seems like
every stock out there has low implied volatility and i'm referring to mega cap
stocks now i'm not referring to you know small caps so you're not going to get
much premium for right now so before you think about selling puts and calls
because the markets not moving much i urge you to reconsider wait until
volatility picks up so at least you're getting something in return for the risk
that you're putting on or the risk that you're you're taking on here so if you'd
like some help with how and when to buy puts and calls or just help with putting
together a trading plan or investing plan i can certainly help you with that
my name is David Modell and my email address is David Modell @ gmail.com if
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so thank you so much for listening I hope this was helpful and i'll talk to
you soon