Back to the original question, I only short naked puts or put spreads shortly after sharp negative events. IV is pushed up so much relative to mean reverting average that the risk-reward is acceptable. Otherwise, shorting puts & put spreads month-in, month-out will get you found out eventually. And even if you wanted to own the stock, there will be ones that will keep cratering and shatter your pnl.

Let’s say i buy the put spread (i guess the opposite of “sell your OTM put and buy a further OTM put”) i mean doesn’t it make sense to sell the spread when you are bullish on the underlying? Surly says put ratio spread generates credit so why not pick up extra $$ by selling more further OTM put? I tried to make that trade (paper money) on SPY options by buying 50 Nov 100 puts and selling 75 Nov 95 puts. But honestly i have no idea what is driving my P/L right now.

I also sell puts when I want to buy stock. Very often I’ll buy the stock and sell a put at the same time. I hate when I sell a put and the stock rallies hard. I know my personality, this pisses me off. So, by buying the stock and selling the put I participate in the rally.

Selling the bull put spread for a credit to finance the long call is very similar to a long combo (-p, +c, different strikes) or synthetic long stock (-p, +c, same strikes) without the unlimited downside risk. This kind of trade is very long vega. As the market goes up your puts become worthless and you’re just long calls which are long vega. Vega however, hedges your downside. As your underlying moves down your long calls become hurt by delta but helped by the increasing vega until they are worthless and then you’re just short a losing bull put vertical with limited risk.

And finally, I really like your short put ratio spread idea. You’re right if the stock moves up and keep the credit for the spread and you’re right if the stock moves down into the short strike price keeping a huge gain and you can buy the stock cheaper than if you just sold the put alone if you get assigned!

Good point. A good P&L attribution system would take care of this kind of stuff plus let you figure out which factors contributed to your gains/losses (eg market, vol, etc) There are few systems in the institutional space that do this, but none in retail, to my knowledge. Would be nice to have though.

Eric

The potential stumbling block to figuring this out for yourself is that you have to set up the subgroups on the account statement page. The button is next to Tax Tool on the same line as the setup button, below the On Demand button. After creating the group, you right click on the trades to assign them to a subgroup. Then when you set one of your profit columns to year, it sums all of the trades assigned to that group. There’s still no way to track commission costs other than mentally though.

Anyway, I’m an OptionPit student, and I just found your blog from your guest post. I’m enjoying it. I’m glad I could give something back in the way of useful information.

Lance

For the P&L in the monitor tab, the subgroups feature they added recently will track the true P&L net of all trades in that subgroup if you set one of your profit columns as “Year”. It will even let you put more than one underlying in the subgroup, so you can group hedges and pair trades into one P&L total.