Picasso Posted September 23, 2014 Share Posted September 23, 2014 This is a potentially hard question to answer as well as a possible discussion on the topic. I have noticed something a bit unusual the past several months that I never noticed in the past. I speak to a lot of retail investors (based on what I do for a living) and I have heard a ridiculous amount of times how they are selling puts, often naked without cash to cover, to create an income stream in the teens. There are special cringe words I hear such as "easy" "no-brainer" "fun" and worst of all "free money." Now normally I think this is a pretty standard thing to do, but this has been brought up more times than I can count. Because of low interest rates, this seems to have become a strategy to create income since the market has maintained a pretty solid bid. It sounds like a pretty sound strategy to sell puts on PG or MCD and create some income while you wait for the order to fill. However I remember what it is like to sell puts on something which is gapping down way below your stike. It causes a hell of a lot of panic once those levels bust through because people never thought they'd have to be assigned the stock. Then I started to notice large investment firms offer an option overlay to marginable accounts. So someone might have $5 million in stocks and they can overlay $2.5 million of collateral to sell calls and puts to create some extra income. This is becoming a popular strategy. In addition I have started to notice the skew on options pricing to be much more expensive on OTM than ATM. In fact the index I track is at the highest levels since most major market corrections. So I was wondering if anyone knew a way to track how much naked puts are out there or something similar to track the notional amount of market long exposure at certain prices? I have had some worries that the market is a bit more leveraged than it would otherwise seem and this could play one factor. I suspect there is no easy answer to this. I appreciate any input or reasons why I should not worry ;D Link to comment Share on other sites More sharing options...
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