komodo

Trading Put Options With Buffett

A put LEAP write is a long term bullish position, and a dangerous one at that, especially for small traders. You don't make enough in theta to offset losses if it goes against you. In fact, if it goes against you, premiums increase, magnifying/amplifying the damage. And the bid/ask spreads are horrible. Even buying a LEAP call is better/safer for most people.

Short term naked puts are sharp tools (and profitable if well managed). If they turn, it can hurt. Long term put LEAPS writes are in an entirely different league. They are weapons of mass destruction. If you have millions (or billions) of dollars behind you and are writing puts on a small percentage of your stake, you can take it. For the majority of us, this type of approach, or attempting to copy the approaches of people with giant stakes, is suicide.

God help anyone who entered (and is still in) this trade. Right now you'd be down about $2200 per contract on the SPY options, down $1600 per contract on EFM, and down $3500 per contract on EEM.

I welcome follow-up comments from ANYONE who made money following this article's put LEAPS writing advice.

SHM