Anyone using covered puts

[fenders53]

(09-06-2018, 06:09 AM)NilesMike Wrote:

(09-05-2018, 10:45 PM)fenders53 Wrote:

(09-05-2018, 09:59 PM)NilesMike Wrote:

(09-01-2018, 04:14 PM)fenders53 Wrote:

(09-01-2018, 03:08 PM)NilesMike Wrote: Some drawbacks are that you can only do it round lots of 100 shares.

You will not participate in the stock price growth.

A plus is you will far exceed 2-3X any dividends with the put selling.

Appreciate the input.  I often buy round lots.  But I am definitely NOT scheduling $20-30K stock purchases 30-45 days in advance.  The premium may look good but too much can happen to change the story when going past a month at times.

Are you only selling weekly puts?

No, you can't get premiums to make it even close to worth it for most DGI stocks if you go under a month.   I'm not making a 100 share commitment for $20 premium.  Easier to wait for a down day and head straight to covered calls.  That changes of course when volatility returns someday.  My comment above was more related to AAPL.  100 share assignment will set you back $22K+.  After a pullback then a covered put makes more sense to me. Not at lofty valuations after the market has run for a few months and the stock is approaching overbought.   I have not had much luck getting a put trade to execute at my price lately when I try to squeeze the last $10 on a limit order.  I'll continue to try to make it happen on my terms.

Selling a put or buying covered calls is synthetically the same position. Except that selling a put has less commission..

I agree to wait for a pullback, better stock price and a likely bump in volatility gets you a better premium on the put.

One does not need to get assigned, you can buy back the put at a loss or roll it further away and further out in time.

Selling puts beats buy and hold.

It sure can when the market runs in the proper direction.  I sure try to figure it out but I'm often wrong when I think I know where the market is going next week.  I don't aspire to be the option king but judicious use of them adds income along the way,  That said I did sell a KHC put today.  A stock I'd like to own a larger position of at a lessor price and if not I picked up a nice premium.  I am mixing things up.  Long positions, CC positions and some put sales.  I'll sort it out.  it's nice to have something working no matter which direct the market heads short term.  If the market makes a real drop I will be all over some puts as I want long positions in the end.  Most of my put sales are only 1-2 contracts so it isn't worth it to me to chase tiny premiums.

[fenders53]

Sold a single contract of MMM OCT 19 210 strike put for $410. I have wanted to own the stock since forever. I will do this again if the contract expires worthless, or perhaps I roll it forward if that ends up making sense next month. As I said I have little experience selling puts but I like it so far.

[fenders53]

Sold a JNJ 130 put and an SO put as well. I'll be quite surprised if the JNJ put is assigned to me but the SO has a chance. I'm producing some cash flow either way and hope to own both of the stocks eventually. Still chasing the elusive T puts. Hopefully I'll find the right moment eventually.

[NilesMike]

Looks like you'll be fine because of your strategy. Selling puts to get the stock at a discount or keep the premium.

High class problems.

[fenders53]

(09-07-2018, 06:15 PM)NilesMike Wrote: Looks like you'll be fine because of your strategy. Selling puts to get the stock at a discount or keep the premium.

High class problems.

Definitely first world problems.  I am trying to buy MMM under 210 because I missed my chance to buy it at 110 long ago.    I got here trying to keep my basis low and I'll continue to enter positions that way.  No doubt I will regret being cheap along the way.  More than a few opportunities have gotten away from me.  I want to document my trades here.  Then I will look back in six months and evaluate my decisions for better or worse.

[fenders53]

Sold a few more cash covered puts this week. MET, CSCO, and another SO contract. Someday I'll actually be long on most of these companies then we'll explore CCs where it makes sense.

[crimsonghost747]

Sold my first put in a long time. OMC at 67.5
It's a win-win situation since I don't really mind if it gets assigned, I feel like jumping on board with this company. (though maybe with 40 or 50 shares instead of 100)

[fenders53]

Good for you Crimson! It only fails you when you fall in love with option premiums and subject yourself to long position risk in a stock you don't wish to own long-term anyways. Same goes for CCs. If you don't really want to own the stock for five years then don't buy 100 shares just to sell calls or you'll find yourself in a bad spot before you know it. Been there and felt the pain. It doesn't always work out but but more often then not if you get assigned the position is oversold. Fair chance you can dump half the assigned shares if you desire. I have a few positions where that may happen if I get assigned. Mostly I stick to positions where I am good with 100 shares. I have a lot of cash to deploy so this is a special situation for me.

[NilesMike]

Great read for those who wish to protect your portfolio or as a stand alone trading strategy.

https://papers.ssrn.com/sol3/papers.cfm?...id=1133509

[fenders53]

Sold MO and BAC puts so far today. MO is ex-dividend today but the stock price corrected at the open. Over-corrected IMO so I already got almost double the missed dividend credited to my account will have a nice long entry if MO pulls back much more this month. Basis would be sub $60.

[crimsonghost747]

Question for those of you who simply play the premium game.

Before we get into details, the companies where I sell options of any kind are companies I don't mind holding for the long term. However I usually have my long term position already and I use the options play as a separate strategy, with a separate amount of $ that I keep in option plays. The reason I use companies which I already own is simple: I keep an eye on them more than I do on others. And if I've qualified them to be long term holdings then there should be less risk of a catastrophic failure because I do like the company and their fundamentals.

So, back to the question.
You sell a put, basically hoping that it won't go that low. So the profit is the premium. What do you do if it does end up below the strike? Take a loss and buy the option back? Take the shares and sell a covered call more or less on the money?

[fenders53]

I am sure you will get a few opinions on this subject and here is mine....

A true premium player will chase the better premiums that are easy to find on a screen. It is so tempting vs more conservative stocks. The underlying security is not so important to the true premium player. It works great right up until it blows up in your face when the market swings at the wrong time. It's just gambling because the put sale is basically naked. If you don't want to be assigned you can attempt to repurchase the put and roll it forward to a future date. You can use other strategies such as spreads to limit your risk. I am not interested in the time and stress required to make that work.

My personal rules are NEVER sell a put unless I truly desire to own the stock, and probably for the longterm. If the company story changes over the next month I might roll it forward, but that is never the plan going in. I have made about 8 put sale trades the past 10 days as I try to establish a DG portfolio at a discount. Mostly it is going very well. Here is an example of a trade I placed that isn't going so perfectly....

I desired to own MMM and the current price is 212.50. I'm a little nervous to enter since SEP-OCT can be tough, especially after the markets recent run. Trade wars likely etc. 100 shares is a 21K+ purchase and that's a big move for me. So I sell an OCT 19th put at the 210 strike price. $410 premium and I am pretty comfortable. If assigned my basis will be about $206. $6.50 below the price I was considering paying to go long now. Put sale looked good until yesterday when MMM announced some financing plan the market apparently didn't like. Stock dropped to about $208 with almost a month to go on the option contract. I am still OK but if the price drops much lower I will have to assess whether I want to be assigned or roll it forward. If the price stays anywhere near the strike rolling forward is no big deal. If I had went long at 212.50 I'd already be down $450. I wouldn't stress it if it was a $50 stock but we are talking big money with a $200+ stock. If a stock drops 5-10% you may maneuver out of it by rolling forward and profiting from time value erosion. If the stock goes into freefall you are going to eat it at some point. I'll let you know how this MMM play ends. Most of the other puts I sold are going to expire worthless and I sell another put because I do desire to go long on these stocks. I may have to sell some of these puts three times to go long. Barring a crash a few stocks will run away and I will not own them anytime soon. There are plenty of opportunities so I won't chase anything very far if it runs. I am getting windy again