(05-04-2020, 04:11 PM)Otter Wrote: I have to say, I'm finding the idea of selling puts until I get assigned into a position I want very attractive. How far out are the expiries on the puts you guys typically sell? For example, was looking at the 08/21/20 option chain on KO (a little over a quarter away). Could sell a $40 Put and collect probably $155 or so in premiums, which is almost a year's dividend on the underlying position.
I knew you would come around Otter. I'd be broke by now if this was a bad idea after 600 trades. I've lost track, it might be 800. Getting a years dividends up front and then worst case being forced long at a good price relative to just going long today is a beautiful thing. I sometimes pick the expiration date carefully so I qualify for the first dividend days after I might be assigned. It's mathematical of course, but more art than science in execution. In some cases it depends on how much spare time you have to manage option positions. A few general rules I take the liberty of bending only slightly for best results.
-Required that you are willing to own the stock, that's obvious.
-A stock that has sold down some. Doesn't have to be extremely oversold, but over-bought is generally not a good idea if the DTE is a month or more away.
-Don't chase extraordinarily high premiums. No different than yield chasing.
-Just a personal rule but if I can't get 1% yield in under a month I don't sell it. That's not a problem now. It's more like a week right now.
The time will return when this doesn't work nearly so well for lowish beta stocks but IV is still high enough now. I have targeted KO as well. REITs coming soon again. You have the resources so my recommendation is spread it out over a few strikes and dates for the experience. Option premium time decay accelerates around 45 days. Normally I make more money doing two or more shorter options over that same 90 days. Sell at least one contract well short of 45 for the purposes of experience. Roll it forward if that makes sense. There are times I chase a stock way lower for a better entry, or it expires worthless. Whether that makes sense varies from one trade to the next.
I normally go 30-45 days like Mike. Lately I have not and it is working very well only because IV is so high. I've made nice income for 2-3 days of exposure at times.