I can relate; I got burned quite badly on SPY and QQQ puts (too far OTM. Lost abouts 50 %.) Time decay is a bitch; even if you're "not not right" – or just slightly wrong – you'll lose money. Just being long cheap securities is a way easier way to go IMO. Going short does seem appealing at times, but if one decides to act upon those ideas, one should keep in mind that it's painful, if one isn't prepared to lose the entire investment (as a cost if insurance (as one should be, IMO – that should be the point of buying it; not capital gains.))
I do think that buying puts on an expensive market may be an intelligent way of buying insurance. However, options are (IMO) tricky. One needs too think very carefully about how far OTM one wants to go (not very, IME; and those ATM/NTM options are expensive... making the whole idea unfeasible for me, since I want to buy for only a very small sum, as a disaster insurance). And be patient with price, since it can fluctuate wildly, and since it isn't easy to determine what "fair value" might resemble. (One does have a clear advantage vis a vis those who use Black-Scholes as substitute for religion, however; probably the best thing would be to calculate BS, and if the price that one ends up with through that method seems too good/bad to be true, make use of that.) |
