Tuesday, March 4, 2014

The short put

I'm not a golfer...  So lets just get that out there right now.

If you want to follow my trades, go to twitter and follow @short_put

Back to the 411:

What am I talking about?  It's going to make your heads spin...  So just sit back, relax, and try to ignore everything I'm about to tell you.

Am I preaching a get-rich-quick scheme?  No.  But I have sussed out an almost fool-proof and risk-free way to extract weekly income on a almost completely consistent basis from the stock market.

Unfortunately, the old adage "you need to have money to make money" is absolutely true in this case because without some money to "cover" the trades, you won't be able to do it.

Now I could get bogged down with the details but that would no doubt lose ALL of the 3 readers I have...  So I'm AM going to dumb it down.  For a variety of reasons.

Nitty gritty explained in trader lingo:
Rolling ATM (at-the-money) SHORT PUTs (naked puts) on 3X Leveraged BULL Market ETFs.  Rolling forward the same strike the last day of the contract, or chasing up the strike price on very bullish market runs.  The short duration, short puts can be 100% covered by long duration long puts but this will cost you 25% of your profits.  However, it completely removes 100% of the risk associated with this strategy.

Premise explained in non-trader lingo:


My trading activities essentially make me an insurance salesman.  The term of the insurance determines how much premium you can collect from your "customer".  The longer the term, the more money you get.  Do you ever have to honour the terms of the insurance?  NO.  The market provides you with buyers and sellers ALL THE TIME.  So if you want to get out of your deal, you can buy it out.

The fundamental premise is that this "insurance" ALWAYS ALWAYS ALWAYS costs MORE for a longer term.  So no matter how much your position is worth and no matter how much your position netted you, you will ALWAYS be able to find a LONGER term one to fill it's place which will get you MORE money in your pocket then getting rid of the shorter one cost you

Yes, you're on the hook for a longer period of time, but if the same thing happens again, you just roll forward again and again and again.

For the same amount of insurance, the shorter terms are worth less.

Heads spinning or rolling?

Stay HUNGRY my friends!