02-05-2015, 11:50 AM
It those questions really depend upon one's objective. We use TDA. Here I am anticipating a dividend run and have no interest in the shares. I'll give the ticker a few days to run, if it is going to and then will sell the contracts.
Sometimes I sell puts, for a position that I would like to increase, but which am unwilling to pay the current price. For example, I would like to build my ESV position but on Jan 21st was unwilling to pay the current price of over $29. Instead I sold three Feb 20 contracts for ESV $28 puts. The sale brought in 80 cents per share. If exercised, I get my shares at an effective price of about $27.30. If the contracts expire, then I net $250 or 3%, which is a pretty good return for one month. If the share price cooperates, I'll keep selling the puts until the contracts eventually get exercised. By choosing fairly close expiration dates, the duration is very short and helps manage risk. The only real risk of using this approach is if the price runs and I miss my shares, but there are always plenty of alternatives, so nothing really lost. IMO one should NEVER sell puts for shares that the investor does not want to own. That kind of speculation can be very dangerous.
Sometimes I sell puts, for a position that I would like to increase, but which am unwilling to pay the current price. For example, I would like to build my ESV position but on Jan 21st was unwilling to pay the current price of over $29. Instead I sold three Feb 20 contracts for ESV $28 puts. The sale brought in 80 cents per share. If exercised, I get my shares at an effective price of about $27.30. If the contracts expire, then I net $250 or 3%, which is a pretty good return for one month. If the share price cooperates, I'll keep selling the puts until the contracts eventually get exercised. By choosing fairly close expiration dates, the duration is very short and helps manage risk. The only real risk of using this approach is if the price runs and I miss my shares, but there are always plenty of alternatives, so nothing really lost. IMO one should NEVER sell puts for shares that the investor does not want to own. That kind of speculation can be very dangerous.
Alex