Anyone using covered puts

[fenders53]

(11-30-2018, 11:26 AM)Kerim Wrote: Thanks, this is really interesting and useful to me! I'm really intrigued by he idea of comparing the premiums you collect to the dividends you would have collected.

Some questions:

• When you say "expired worthless," you mean that the option was not exercised, you pocketed the premium, and were free to move on and use the cash that had been securing the put for your next endeavor, right?
  
• What exactly do you mean when you say that you took a loss on CVX (for example)? Do you mean that the share price was lower than the strike price at expiration and so your "loss" was the difference between the strike price and the market price that you were required to pay (after accounting for the premium that you collected for selling the put)? Do you really consider this a loss, since you acknowledge (I think?!) that you would have been happy buying at the strike price at the time you sold the put?
  
• If you don't mind me asking, are you making these trades in a taxable or tax-deferred account?
  
• If in a taxable account, I assume the premiums collected are taxable income. Do you have to track those for reporting on your return, or does the brokerage send a statement at year end of some kind?
  

Thanks again!

First off crimsonghost, thanks for participating in the thread.  I'll deal with you later..  Just kidding lol    I'm not avoiding your dissenting opinions.  Just trying to help Kerim at the moment since he dove in. 

Kerim, 

I do this in a Vanguard Rollover IRA primarily.  Also a Roth IRA.  Taxable accounts take the fun out of it if you do it too often.  CVX was a bad example.  I didn't really "lose" vs just going long in the first place.  The position recovered and I am about even on CVX a month later.   I chased it when oil spiked up and violated my out rules.  FOMO disease got me.  (fear of missing out).   I did get stung on DWDP.  I did not research it properly.  I can't give you a rational explanation why I sold the put.  It was just a mistake after reading an article a couple months ago.  I closed the position before it got any worse and dropped 20 points instead of 6.  I lost like $400 after my premium came out.  I am going to be honest hear even if I sound stupid explaining it.  I could type a list of the 50 great trades this quarter but the tough positions will help you more.  So here is one of those I survived during the crazy oil price swing debacle.  Learning to keep your cool when the story changes and roll a put forward is a useful tactic..........  

The exact numbers not so important but you'll get the point well enough if I round them.  

-XOM was trading around $86 and it was far from oversold. 
-I sell a strike 84.50 a few weeks out at $1.50 or whatever. My timing could not have been worse.
-Stock drops like a rock and it is in the money by $400 as expiration approaches.  The sky is falling in oil!
-Before I got assigned I closed the contract for $400, so now I am down $250.
-I immediately sell a contract a month out with a lower strike around $83.  Option premium slightly above break even. I'm just selling time to get out of this if I need to.
XOM bounces above $83 a few weeks later and it's all good.

At the moment I own BP and CVX in oil.  The goal was to own the oil majors.  I just messed up my entry when the market turned.  

It's more fun to talk about the range bound stocks I just collect premiums on every month.    I wanted to own them but some are just too easy to collect premiums on while I try.