(10-05-2020, 07:43 PM)NilesMike Wrote: I'll try to help along regarding basic put and call selling the way I do it (or at least should be doing, discipline is always important when dealing with $$$)This is EXACTLY what I had in mind for now Mike. We don't do this exactly the same way, but the end goal and results are similar. Reliable income-less risk.
1. I ONLY trade options on stocks that I own or would like to own.
2. The options are either cash secured (puts) or covered (calls). No margin use or needed for these.
3. I sell the option 30-45 days to expiration, sometimes I'm only in them for a week or 10 days. That is when the market decides to accommodate my goals.
4. I sell puts when the stock has moved down, either near the bottom of the range or just a couple of day decent down move. Why? I can more comfortably sell closer to the current strike price. (most premium and most theta to decay)
5. I sell calls after the inverse. Moves to the top of a range or a good couple of decent up days. Why? I will most likely have a profit on the stock at that point, I can add some option premium to sweeten things and again more premium near the money and more theta to decay if the stock decides to take a rest and pull back a while.
6. Exits. More art than science but if I can get 50% of my premium in the bank, I close the option position.
7. Assignment. I do not roll options. If I don't have the chance to take a 50% winner I will let it run towards and to expiration. The goal of every covered call is to get called away (I know some disagree but most pros go with that thought process. If every covered call I put on gets called away, I welcome the high class problem.
Same with being put stock, I then put on a covered call. With the stocks I use, there are dividends to be aware of as well. I have closed options if it was expiring after ex div date. I DO try to get as many dividend payouts as possible. Essentially that is the only managing I do after entry.
With this strategy I have collected the average of a dividend payout about every 3 weeks.
I have also found that the extra engagement with these stocks keeps me on top of them better.
I'll emphasize a few of your points. If we drop a term you don't understand just ask. I am going to try to ekeepit simple.
1. I HAVE to be willing to own the stock, and better yet be excited about it.
2. I also sell cash secured puts and covered calls only. No margin ever! The day will come when the market teaches you a hard lesson that can devastate a port.
3. Most of my options are also initiated in the 30-45 day range. Option premiums begin to decay at an increasingly faster rate in this range. I do sell a few weekly options. I don't desire 20 trades with the same expiration date. Six is bad enough if I manage them (sometimes roll forward). I mix in some trades on the off weeks. (Weekly options some stocks offer)
4. Strongly agree with #4. Sell near the bottom of the trading range, lowish RSI. Chances of success greatly increase. You absolutely can make money doing this with a momentum type style. It's not for me. Main point is selling near the current price. Premium (income) received is much higher. You could make a living selling them more conservatively though. You could sell boring way out of the money puts on T and KO and still exceed the dividend yield over the course of a year.
5. I'll hold off on covered call comments. I'll allow a real world trade to be exercised and discuss it then.
6. Exits is a biggie. I also believe it is more art than science. Easier to sell then buy back (if you choose to) because the numbers are in front of us. The example T trade yields about 2% for three weeks exposure risk. I used to just allow them to expire 95% of the time. Mike convinced me to close them after a desired profit is achieved. He tries to get 50% and moves on. I tend wait for 70-80% if I am not afraid of the stocks near-term price movements. I'm not particularly concerned who is "more correct" as the overall market trend gets a big vote and we never no what next week brings. We'll discuss this subject a lot going forward.
7. Assignments, better left for real time/ real trade discussion. We can share our thought process. I probably roll at least 10-15%% of my puts and calls forward. It depends on the premium available at the time. If I can roll the strike price down, or get another months premium, I consider it. If not, I move on.
Finally, there is going to be some disagreement on best practices here. I see no problem with that as long as you share your logic in simple terms. We are a little early to share complicated strategies. (I do love the conversation but a few weeks from now is probably better IMO)