(11-30-2018, 01:07 PM)Kerim Wrote:(11-30-2018, 12:42 PM)crimsonghost747 Wrote: And that brings us to our second point.. well we all have our opinions but if the plan is to hold long term then I would certainly consider that a loss.
For example stock X is trading at $28 today. You have sold a put option with a strike of $30. You will be paying $3000 for something that is currently worth $2800. So I don't see any other way than saying "I lost $200 minus the premium".
Yeah, but at the moment the put is sold, the stock was trading at, say, $31. When you sell the put, you're saying that you'd be comfortable buying at $30. So if you had instead not sold the put and just waited for your price, and bought outright at $30, you'd STILL ride the shares down from $30 to $28. In this case, you come out ahead for having sold the put, by the amount of the premium. Or am I not seeing it right?
You are seeing it 100% right as far are it pertains to my strategy. As I mentioned earlier I try to follow a few simple rules. When I do it works out well a very high % of the time.
1. Only sell puts in a stock I truly desire to be long in. Don't get sucked into high premium, high beta stocks I don't wish to enter long. It;s tempting but it's gambling IMO.
1. Stock has to already be extremely close to the price I am comfortable paying, and about half the time it is just a little under already. That is what makes it no risk IMO.
2. Sell a put that is a few percent under current price, and yields an option premium no less than 1% of stock price. Hopefully more but if the stocks beta is low much over 1% may not happen without stretching the expiration date out over 40 days. I prefer 20-30 days when it works. I can often get 2% premium.
3. If stock is oversold, or near the bottom of it's trading range, the chance of success is MUCH higher. Sell it towards the top of the range and it's trouble fairly often. Selling a put on a stock in free fall is nothing but stress when you try to tap dance out of the situation.
My sample size is limited as I have only sold about 75 contracts.
- DWDP was a complete bust as I broke my rules. I lost about $400 and bailed.
-I rolled 4-5 forward contracts forward and bought some time. It ended fine but XOM was a near miss.
-I was forced to buy about 10 contracts but I got my discount on the stock. If the story has changed I write a call when I can. I got cold feet on F and dumped some shares after collecting a call premium.
-The rest expired worthless and I banked the premium. There were a few times when the stock rebounded quick and I just closed the position at a big profit after a week or two. (AAPL, MMM, MCD) I've sold puts on some stocks 3-5 times because they trade in a range. Premiums far exceed the dividend and the share price is going nowhere in this market so no loss. In a hot market they will run away and I'll move on to something else.