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Selling Puts

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Karma:

I've started selling cash-covered puts and covered calls to generate a little more income/return. I've been looking for dates 90 days out and strike prices about 10% below (put) or 10% above (call).

Any one else active in this area?

99toLife:

Not sure I'm of much help to you but I would like to know also. 

Vantage 8 dude:


--- Quote from: Karma on June 24, 2018, 11:48:32 am ---I've started selling cash-covered puts and covered calls to generate a little more income/return. I've been looking for dates 90 days out and strike prices about 10% below (put) or 10% above (call).

Any one else active in this area?

--- End quote ---
Not a bad way to increase cash flow and possibly get a stock "put" (sold) to you at a price below the current market price. While there are many different strategies, one that I've tended to follow is to sell a cash-covered put on a stock I'd like to owe at a (lower) predetermined price at least 10% below the current price and no longer than 45 days in length. While the premium (money you receive on the front end) won't be as much as going out further in time, it also tends to typically reduce your overall risk on the entire trade. The reason being simple: the longer the contract takes to expire the more POTENTIAL a stock has to encounter unknown/unexpected news that might adversely impact the stock's performance. This is particularly true when one considers the timing of earnings reports and other announcements. BTW before entering into such a strategy I would strongly suggest one look at various stock charts to determine potential areas of price support (on the downside) and resistance (upside) on any/all stocks being considered.

One last thing: in most cases such "covered" puts can be executed in both retirement accounts-primarily IRAs-as well on non retirement accounts.

Karma:


--- Quote from: Vantage 8 dude on September 30, 2018, 12:30:39 pm ---Not a bad way to increase cash flow and possibly get a stock "put" (sold) to you at a price below the current market price. While there are many different strategies, one that I've tended to follow is to sell a cash-covered put on a stock I'd like to owe at a (lower) predetermined price at least 10% below the current price and no longer than 45 days in length. While the premium (money you receive on the front end) won't be as much as going out further in time, it also tends to typically reduce your overall risk on the entire trade. The reason being simple: the longer the contract takes to expire the more POTENTIAL a stock has to encounter unknown/unexpected news that might adversely impact the stock's performance. This is particularly true when one considers the timing of earnings reports and other announcements. BTW before entering into such a strategy I would strongly suggest one look at various stock charts to determine potential areas of price support (on the downside) and resistance (upside) on any/all stocks being considered.

One last thing: in most cases such "covered" puts can be executed in both retirement accounts-primarily IRAs-as well on non retirement accounts.

--- End quote ---
I went too far out chasing a bigger premium on the front end, and now I'm having to wait them out. I should have gone with a sooner date, as you suggested, to be able to turn it over more often.

Vantage 8 dude:


--- Quote from: Karma on October 02, 2018, 04:53:00 pm ---I went too far out chasing a bigger premium on the front end, and now I'm having to wait them out. I should have gone with a sooner date, as you suggested, to be able to turn it over more often.

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Yep, some time chasing larger, longer dated premiums can turn into a disaster. This is especially true if the market/a particular stock gets extremely volatile. Remember that the greatest factors that determine an option's premium is time to expiration AND the measure of likelihood (or not) that a particular option will be exercised within the time and price indicated.

In some respects going after the very rich premiums can be like trying to navigate a mine field or being drawn into the trap of buying a stock based primarily on its yield. In the markets, as with life in general, if it looks too good to be true then it often is.

BENTON PIGGEE:

This is my wheelhouse. I use etf's so there's no risk of bankruptcy.

Vantage 8 dude:


--- Quote from: BENTON PIGGEE on November 05, 2018, 10:14:04 pm ---This is my wheelhouse. I use etf's so there's no risk of bankruptcy.

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Well you're certainly correct about ETFs being a portfolio of different stocks; therefore, the risk of one company going bankrupt won't necessarily impact the entire fund. Whether one chooses to go the individual stock route or prefers to go the way of ETFs there are obviously several ways to "skin a cat".

 One rule of thumb I've always tried to keep in mind, however, is IF I'm going to sell a put then I need to honestly be prepared/able to have the position "put" (sold) to me at that particular predetermined exercise price. Otherwise should the position go against me I'll have to buy the put back, very well could be at a loss, in order to get out from under the obligation.
 

BENTON PIGGEE:

I try to sell at a level where about half of my options are exercised so I can sell a covered call when/if it goes back up.

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