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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 252144  
Subject: Re: Tips wanted for put option short selling? Date: 2/26/2013 3:25 AM
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First, clean up your terminology. You aren't talking about short-selling put options, you are talking about *buying* put options in place of short-selling.

Second, realize that the options game is weighted significantly in favor of the option writer. For starters, as a buyer of options, you don't make money by being right; you make money by getting the direction right but being overly conservative. The problem is, the more conservative you are the more expensive it is to be in the game.

What I mean by that: If the stock is selling for $100, and you buy puts at $90, and then the stock drops to $90... your puts have no intrinsic value.

Worse, you probably paid two or three bucks a share for them, so the stock has to drop to $87 or $88 just for you to break even.

So you could - thinking the stock will drop to $90 - buy puts at, oh, $98 instead... those will probably cost four or five bucks a share. So if you're right you make three or four bucks a share. And if you're wrong, you lose four or five bucks a share.

And there's a time limit on it. If you're right but the stock takes longer than you allowed for... that's the same as being wrong.

As far as this board, most of the regulars are heavily into mechanical strategies and backtesting. The thing about backtesting is that it's a huge data hog - it takes YEARS (preferably decades) of historical data on a decently large selection of investable items without look-ahead. That latter bit means that if your chosen field of play is options on Dow stocks, the historical data for January 1980 has to cover the options on the stocks that were in the Dow at the beginning of January 1980 - NOT the stocks that are in it TODAY.

And as far as I am aware, no such data set on options is publicly available.
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