Below is an excerpt from a weekly column called “A Scientific View” written by Hedge Plus owner Patrick Hayes. In this column dated May 6, 2019 Patrick weighs the benefits of using sold puts versus long futures.

 

There is positives for both futures and options (the same advantages are true for a sold call verse a short futures).

Advantages of long futures:

  1. Direct replacement for a HTA cash contract.
  2. Long futures are the best tool for short term higher prices moves because they pick up penny for penny (or lose penny for penny).
  3. Futures are familiar and easy to understand.

Advantages of sold puts:

  1. Time value gives you extra profit if the market rallies up to your strike.
  2. The sold put has extra cushion when compared to a long futures position if prices fall.
  3. You can use some or all of the time value to buy a put giving you fixed risk.
  4. Sold put options forces you to take short term gains. For Example, if you sold a $4 July put today for $.32, all you can make is the $.32. If prices rally enough to get you most of that profit, you will take profit because of that.

Targeting and taking profit is why I like sold puts the best. I have seen too many of you make profit on a futures position and never take it. A sold option forces you to take profit, profit that is based off a defined price move!

Using sold options leads to a higher probability of hedge success for normal price swings. Futures are best for the big, crazy moves or for a very short term play.