What strike to choose if I want to sell weekly calls against a long LEAP put
What I do not get is why does the author choose to buy an ITM put. If   the goal was to not lose more than 5.6%, he could have chosen a out of   money put where the strike is ~6% OTM. The reason why he is buying a ITM put instead of a put 5-6% below the ATM price, is because he wants to only lose 5-6% after all fee's.  A put at 5-6% below ATM is not free, so it will not actually provide a 6% cushion, more likely 10%-15% maximum loss after it's cost is accounted for. You cannot rely on the strike alone to determine the level of protection you are buying.  Real world example.  SPY DEC 2017 195 strike put, costs $2150, it's about 6% OTM, but it costs roughly 10% of SPY $207, at best it would protect 85% of your net worth.   Strike - Costs = Protection  Did he choose an ITM put because he does not want to pay any time   premium? Does he not lose in wide bid-ask spreads what he gains by not   paying time premium? Nope, you were just misunderstanding how he calculated his protection. He wanted to protect 5-6% after the cost of the hedge. He 'needed' to select an ITM put because time premiums are so high that an OTM put wouldn't suffice. So this is only a useful strategy if you already own the stock and want protection. The ITM put has a delta closer to 1 than an OTM put. But all LEAPS have massive amounts of theta. Since the delta is closer to 1 it will mimic the price movements of the underlying which has a delta of 1. And then you can sell front month calls on that over time. Note, this strategy will tie up a large amount of capital.
"You can call CBOE and tell them you want that series or a particular contract. And this has nothing to do with FLEX. Tell them there is demand for it, if they ask who you are, DONT SAY YOU ARE A RETAIL INVESTOR, the contracts will be in the option chain the next day. I have done this plenty of times. The CBOE does not care and are only limited by OCC and the SEC, but the CBOE will trade and list anything if you can think of it, and convince them that ""some people want to trade it"" or that ""it has benefits for hedging"" I've gotten 50 cent strike prices on stocks under $5 , I've gotten additional LEAPS and far dated options traded, I've gotten entire large chains created. I also have been with prop shops before, so I could technically say I was a professional trader. But since you are using IB and are paying for data feeds, you can easily spin that too." Put options are contracts to sell. You pay me a fee for the right to put the stock (or other underlying security) in my hands if you want to. That happens on a specific date (the strike date) and a specified price (the strike price). You can decide not to exercise that right, but I must follow through and let you sell it to me if you want to. Put options can be used by the purchaser to cap losses. For example: You purchase a PUT option for GE Oct19 13.00 from me. On October 19th, you can make me let you sell your GE stock to me for $13.00 a share. If the price for GE has fallen to $12.00, that would be a good idea. If its now at $15.00 a share, you will probably keep the GE or sell it at the current market price. Call options are contracts to buy. The same idea only in the other direction: You pay me a fee for the right to call the stock away from me. Calls also have a strike date and strike price. Like a put, you can choose not to exercises it. You can choose to buy the stock from me (on the strike date for the strike price), but I have to let you buy it from me if you want to.  For example: You purchase a CALL option for GE Oct19 16.00 option from me. On October 19th, you can buy my GE stock from me for $16.00 a share. If the current price is $17.50, you should make me let you buy if from me for $16.00. If its less than $16.00, you could by it at the current market price for less. Commonly, options are for a block of 100 shares of the underlying security. Note: this is a general description. Options can be very complicated. The fee you pay for the option and the transaction fees associated with the shares affects whether or not exercising is financially beneficial. Options can be VERY RISKY. You can loose all your money as there is no innate value in the option, only how it relates to the underlying security. Before your brokerage will let you trade, there are disclosures you must read and affirm that you understand the risk. "I have a Roth IRA with Scottrade, and they allow me to write cash secured puts, as well as covered calls. I can also purchase calls or puts, if I choose. When I write a cash secured put, it automatically deducts the amount required to purchase the shares at the strike price from my ""cash available for transactions""." There are several ways to protect against (or even profit from) a market correction. Hedge funds do this by hedging, that is, buying a stock that they think is strong and selling short a paired stock that is weak. If you hold, say, a strong retail company in your portfolio, you might sell short an equal weight of a weak retail company.  These are like buying insurance on your portfolio. If you own 300 shares of XYZ, currently trading at $68, you buy puts at a level at a strike price that lets you sleep at night. For example, you might buy 3 XYZ 6-month puts with a strike price of $60. A disadvantage is that the puts are wasting assets, that is, their time premium (which you paid for at the outset) becomes zero at expiration. (This is why it is like insurance. You wouldn't complain that your insurance premium was lost when you purchase insurance on your house and the house doesn't burn down, would you? Of course not. The purpose of the insurance is to protect your investment.) Note that as these puts are married, they only protect your portfolio. Instead of profiting from a correction, you would merely protect your portfolio during a correction. (No small feat!) If your portfolio is similar to the market, you can buy S&P index puts. If your market reflects a lot of technology, you can buy technology sector puts.  Say you have a portfolio of $80K that reflects the market. You could buy out-of-the-market puts (again reflecting your tolerance for loss). Any losses in your portfolio after the puts go in-the-money would be (more or less) offset by gains in the puts.  An advantage is that the bid/ask spread is smaller for the S&P. You would pay less for the protection. Also, the S&P puts are cash settled (meaning you get money put in your account on the business day after expiration day). A disadvantage is that the puts do not linearly go up as the market drops. (Delta hedging is a big deal in and of itself.) Another disadvantage is that they are wasting assets (see the Married puts section, previous). While the S&P puts can be used to maintain your market portfolio in the midst of a correction, you could purchase more puts than needed. If you had correctly timed the market, then your portfolio with puts would increase. (Your mileage may vary; some have predicted an imminent market crash way too often.) Collars involve selling out-of-the-money calls and using the premiums to buy out-of-the-money puts. There are many varieties of collars, but the most straightforward is to sell 1 call and buy 1 put for every 100 shares. (This can also be done for index puts and calls.) This has the effect of simultaneously: You get your insurance for almost free. But again, it is protecting your portfolio.  As the name implies, you make money when the market goes bearish.  Bear put spreads involve buying puts at a close strike price and selling an equal number of puts at a lower strike price than the first. You have a defined maximum loss (the premium you paid for the higher put minus the premium you received for the lower put). You have a defined maximum gain (the difference between strikes minus the defined maximum loss).  Buy S&P 500 index puts. If you buy deep out-of-the-money puts, it won't cost much, but you have little probability of it paying off. But if they go in-the-money, there could be a sizable payoff. This is similar to putting one chip on red 18 on the roulette wheel. But rather than paying off 35:1, it is a variable payoff. If you're $1 in the money, you just get $100. If you're $12 in the money, you have a $1200 payoff.  If you buy at-the-money puts, it will cost a lot, and your probability will be about 1 in 2 that you will pay off. In our roulette analogy, this is like putting 30 chips on the Even bet of the roulette wheel. The variable payoff is as in the previous paragraph. But you're more likely to get a payoff. And you will lose it all of the roulette ball lands on an Odd number, 0, or 00. (That is, the underlying of your put goes up or stays the same.) If your research shows you what good stocks to buy, it may also tell you which stocks are ripe for a fall. You could short-sell these stocks or buy puts on them.  Similar to short-selling stocks or buying puts, you could sell short overpriced sectors or buy puts on them. There are ETFs that will allow you benefit from falling prices without needing to have a margin agreement or options agreement in place.  Sorry to have a lengthy answer. Many other answers emphasize that one shouldn't try to time the market. But that is not the OP's question. Provided here are both: By buying the call option, you are getting the benefit of purchasing the underlying shares (that is, if the shares go up in value, you make money), but transferring the risk of the shares reducing in value. This is more apparent when you are using the option to offset an explicit risk that you hold. For example, if you have a short position, you are at unlimited risk of the position going up in value. You could decide you only want to take the risk that it might rise to $X. In that case, you could buy a call option with $X strike price. Then you have transferred the risk that the position goes over $X to the counterpart, since, even if the shares are trading at $X+$Y you can close out the short position by purchasing the shares at $X, while the option counterpart will lose $Y. You're correct. If you have no option position at execution then you carry no risk. Your risk is only based on the net number of options you're holding at execution. This is handled by your broker or clearinghouse. Pretend that you wrote 1000 options, (you're short the call) then you bought 1000 of the same option (bought to cover) ... you are now flat and have zero options exposure. Pretend you bought 1000 options (you're long the calls) then you sold 1000 of them (liquidated your long) ... you are now flat and have zero options exposure. In India, as suggested above, short/long position can be taken either in F&O or Spot market. The F&O segment short/long can be kept open for appx. 3 months by taking position on the far contract. In intra-day/Spot market, usually the position has to be squared at the end of day or the broker will square it during expiry (forcibly). However, having said that, it is a broker specific feature, as per National Stock Exchange (NSE) or Bombay Stock Exchange (BSE) any transaction has to be settled at the end of T+2 days (T being the trade day). Some brokers allow intra-day positions to be open for T+1 or T+2 days as long as the margin is provided. This is a broker specific discretion as the actual settlement is on T+2 (or in some cases as the exchange specifies). So, in general, to short a stock for a longer time, F&O segment should be used. thanks.  I have real time quotes, but in the contest, if you put in a market order the trade might happen at the delayed quote price and not the real time price.  Does anyone know at which price it will trade, delayed or real time?