(12-01-2018, 10:10 PM)crimsonghost747 Wrote: yeah it's definitely an interesting method for getting a little bit more from your cash. I'm quite new to the put game and I use it purely to collect some premiums for increased cash flow. It has worked ok so far but I think I've only sold 3 or 4 puts all within the last couple of months.I try not to sell calls often unless I already owned the stock and it has run up some, and preferably trending towards overbought. Not so simple in this recent market. Now it's my turn to ask risk questions. The risk/reward does not pass my standards for that ATT trade you just made. 1% upside. What do you calculate as your downside risk? Based on ATT recent performance I would estimate it at 5% the way T has been swinging around.
I tend to use covered calls much more often. A good example would be T last week. Bought 100 shares on Tuesday for $29.97. Sold a Friday call with a strike of $30, got $32 as premium. Obviously it got exercised since T was trading above $31 on Friday.
So I tied up $2997 for 4 days and made $34. (That is $32 from premium, $3 from increased share price, - $1 from commissions) Over 1% in 4 days, that is pretty cool when annualized. :But there is a good reason I chose this example, so you can also see the downside. I would have made around $123 if I had not sold the call and instead just bought and held T for 4 days. But the calls make it a much more safe play as you collect the premium no matter what.
These covered calls I've been doing for well over a year now, with a maximum of $10k in at any time. So far, so good. I've made some costly mistakes along the way and there have been a couple of months where the cash flow has been negative but overall I've managed to make a good profit.
I do have calls sold on part of my T position, but they are strike 32s. I got smoked selling calls in the 1990's. The premiums on those networking and PC hardware stocks were awesome. I was not diversified and option premiums clouded my stock selections. I was a Jeanyus til the tech bubble popped.
Water over the dam now but it's hard to not beat myself for it once a month. I should be on the beach smoking Cubans now lol. Spoke to a friend of a friend recently. He turned 1 mil into 2 mil, then back to 300K from about 1998-2001. Yikes!Back to reality, I can see myself selling a few calls this week if the market reacts favorably to the trade talks. It's rumored there is progress, but nothing like a long-term agreement yet. Probably a best case outcome at this point though.