Those trading small accounts wishing to primarily sell premium incur the task of trying to gain as much longas possible for the buying power that they have at their disposal. In this week’s tastybites, we share a few tips on how traders of small accounts can reduce their buying power reduction (BPR) in certain trades while still gaining the exposure that they desire.
Tom and Tony talk through adding long wings topositions in order to reduce the amount of BPR that the trade requires. Though this reduces the credit received, traders still gain long theta and are exposed to less risk. Next, the duo show how options can be used to replicate long or short stock so that small account traders do not have to put up as much money to gain exposure. Finally, the conversation concludes with some notes on why we sell premium primarily during high environments; that is, we get a larger credit and potential return on capital (ROC) for the BPR posted for the trade.