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Author: 4aapl Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 202209  
Subject: Re: Today's Options Purchase Date: 10/7/2012 10:47 AM
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I've made a living selling naked OTM puts over the past 4yrs, enough to pay for a 20 yr retirement. Occassionaly, when put, I've turned around and sold the covered calls. Options buyers lose far more trades then they win, like 80-90% losers.

And I've made a living partially to mainly with options over the past 12 years, enough to pay for retirement, forever. What's a "20 yr retirement" anyways?

Options give you lots of options, as you have found. And they nearly all give you a way to lose your shirt. If you had sold too many OTM puts, especially in late 2007 and mid 2008, you might be singing a different tune about the glories of that particular option choice.

As for me, I moved to bull call spreads maybe 5-6 years ago, and have slowly gotten more and more conservative with them. Whereas I used to look for straight calls that could return 300%, I then moved onto spreads that could return 300% (much less risky), and now I'm more than happy with spreads that return 100-150% (even less risky).

The interesting thing is that an At The Money spread returns about 100%, no matter what the expiration. With the stock in the low 650's, a 650-660 should be priced around $5 and thus potentially return 100% no matter if the expiration is next Friday, in December, or in 2015.

(Now those 2015's are going to have a higher bid/ask spread, so instead a 640-670 might be better)

Given that on average the stock market goes up, odds are that an ATM spread is going to pay off.

OTOH, to me straight calls often seem to be used as lottery tickets. I'd think many of those fail. But many people like them, and I was happy with them long ago. And even then, though AAPL's stellar returns helped, I was at 80+% winners. A few 100-300% gains more than paid off a seldom 100% loss. The problem is that those losses tend to be lumped together, like Jan 2008 and Oct-Jan 2008/2009.

But again, there are so many choices with options that it can really be tailored. What works for you might not work for someone else, even if they try to mimic the exact was you make your choices. And one big move in the wrong direction can wipe you out if it's at the wrong time when you are too concentrated. IMO nearly all can be dangerous, and it really comes down to controlling your risk. Get a little too greedy, and you might not get struck down, but it's potentially there.

Aaron
(still curious about that "20 yr retirement" comment)
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