Put and Call Selling
Simultaneously selling puts and calls is also very profitable.
| Call/put Strike (% above (+) or below (-) OEX: | Average rate of return: | % profitable: | 10th percentile: |
| -.5/-.5% | 37.4% | 88% | -0.6% |
| -5.6/+4.6% | 37.9% | 92% | 1.0% |
Note that average monthly return for -.5/-.5% straddle = 2.8% = 48% of the maximum (gross) profit of 5.7%.
Note that -5.6/+4.6% strangle maximum loss = -20.6%.
| Put/call Strike (% above (+) or below (-) OEX: | Average rate of return: | % profitable: | 10th percentile: |
| -.5/-.5% | 37.4% | 88% | -0.6% |
| -2.2/1.2 | 35.6% | 88% | -0.5% |
| -3.1/2.9 | 33.1% | 90% | 0.0% |
| -4.8/3.7 | 29.4% | 91% | 0.4% |
| -5.6/4.6 | 26.2 | 92% | 0.8% |
| -6.5/5.4 | 24.1 | 94% | 0.8% |
| -7.3/7.1 | 19.3% | 97% | 1.4% |
| -8.2/8.8 | 16.5% | 98 | 1.1 |
| -9.0/8.8 | 15.3 | 98 | 1.0 |
| -10.7/15.6 | 12.1 | 99.9* | 0.7% |
* This was profitable virtually every month except for the Crash of '87.
Note that the at-the-money combinations are most profitable, but that your percent profitability (88%) is lower. As you move further from at-the-money, your percent profitability approaches 100%, but your rate of return drops. The intriguing combination of a 10.7% out-of-the-money put sold and a 15.6% out-of-the-money call sold simultaneously leads to a 12.1% return, about equal to that of the stock market, but with only a sliver of the risk. Caveat: cash returns are included, which may be significantly lower in a low interest rate environment.
Leverage: Combining leverage plus out-of-the-money option sales leads to a nice trade-off between reliability and profitability:
| Put/call Strike (% above (+) or below (-) OEX: | Average rate of return: | % profitable: | 10th percentile: |
| -5.6/+4.6% | 37.9% | 92% | 1.0% |
In other words, with the OEX at about 570, if you had a $76,000 portfolio and simultaneously sold 2 calls 4.6% out-of-the-money and 2 puts 5.6% out-of-the-money, you could replicate this amount of leverage. This portfolio would throw off an expected $28,804 worth of income a year in collected premiums net of market losses. Note that the 10th percentile is a very respectable 1.0%, meaning that 90% of the time your monthly return was 1.0% or higher.
