This article briefly talks about the timing of the sell cash-secured puts strategy. $Tesla Motors(TSLA)$ ,$MEITUAN(MPNGY)$ ,$TENCENT(00700)$ .
What is Sell put？
When you sell a put option, you agree to buy a stock at a striking price.
Occasionally, sell put will have large funds or even take over with leverage, and I am most afraid of taking over at a high level. Therefore, the unilateral bull market is often uncomfortable:
1. Sell put earns less than the profit from underlying stock, also earn less compare to Buy call.
2. The strike price needs to be continuously raised, otherwise there will be no premium, and the risk will gradually increase. At the end of the bull market, it will definitely exploded, for like the Chinese ADRs experienced in last Q2 and Q3.
Sell put requires the stock price to have a good margin of safety. It is more suitable to sell put at the middle and late stages of volatile period or bear markets.
Taking $Tesla (TSLA)$ as an example, it has mainly fluctuated between more than 300-1200 in the past 2 years.
When TSLA‘sprice of tsla is lower $800, and sell TSLA put at $300-500, even if the option order is occasionally executed, it will be recover the lost soon, and there are also certain premiums.
Why now is a good opportunity to Sell Put?
Most of the Chinese ADRs see some recoveries recently, which had have corrections ranging from 50% to 80% compared to their historical highs before.
And the $NASDAQ(.IXIC)$ has also fallen by around 25%-30%.
In the 100-year history of the stock market crash, the broader market has only fallen by 90% in 1929, and the others are basically around 50%.
Of course, we cannot predict where the lowest point of the index will be.
However, the index fell by this range, combined with the sell put exercise price and then a safety cushion ranging from 20% to 50%, the combined safety margin is still good.
For example, now you can sell put $Tesla Motors(TSLA)$ in the range of $300-500, sell put $MEITUAN(MPNGY)$ in the range of $100-150, and sell put $TENCENT(00700)$ in the range of HK$250-300. This is a treatment that is difficult to enjoy when Tencent is 600+.
Sell Put Trading Strategies
1. Strategies for the days of the crash
The higher Information Value(IV), the more profitable the Sell put. Greed when others are fearful. Correspondingly, skyrocketing days are more suitable for sell covered calls.
2. Strategies before the earnings
The time value will go from high to low before and after the earnings report, because the information is more transparent and the uncertainty is reduced. Therefore, it is more interesting before the financial report.
On the Tiger Options interface, you can view the historical curve of IV to see if the current IV is at a historical high or low.
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