Dear diary, I stumbled upon a new investment strategy that I don’t know will work out as intended but I started it anyway.
I truly love it because it’s next level complicated.
What you do is you buy put contracts of a given company, I chose the Charles Schwab bank, the contracts have a date of execution roughly three months from date of purchase.
Then, every week, you sell put contracts of that same stock at a slightly different strike price, depending on my outlook on the coming week.
This makes it so that I receive a premium for selling the puts. My hedge against the risk is the long put. The risk is therefor capped by the spread between the strike prices of the further long put and closer short put, minus the premium of the further put plus the premium of the closer put.
Essentially I then have to close the long put about a month before expiry to get some of the premium I paid for it back. And then repeat the strategy looking three months ahead.
In the last year, Schwab had a few weeks where it dropped more than 5%, in essence it historically has weeks that crash my strategy. Meaning that the premiums collected weekly must supercede the cost of those crashes.
My math roughly assumes that im good if those weeks are less than a tenth of all the weeks if I cap the max loss to four premiums. That would equate that if every fifth week we’d burn then we would be pretty flat. Given historical data I might catch wind here, into my sails.
The math here sounds a bit too arbitrary dealing with a monte carlo equation.
I still love the concept and I gotto try it!
Let’s see if this bird can fly.