Thoughts on an options strategy

[ronn38]

Never tried options before, and I want to.

I wanted to, and will eventually, start writing sell to open --but I  discovered Capital One doesn't allow Sell to open Puts, so calls are where I start.

I'm thinking of a buy/write on two companies I would have no problem owning, Roche Holding AG ADR and Amgen Inc AMGN. Both are listed as wide-moat, Low-value uncertainty stocks trading way below valuation at 5 stars, and have started to trend up.  I would buy and hold these, however I am already heavy in pharm and Roche has tax issues (Medtronic is what I'd like to hold in Health sector).

So these seem like no-brainers to sell to open a call contract.

Any thoughts, warnings, advice, good place for further reading on this idea?

Thanks, 

Ronn

[NilesMike]

(01-01-2017, 03:17 PM)ronn38 Wrote: Never tried options before, and I want to.

I wanted to, and will eventually, start writing sell to open --but I  discovered Capital One doesn't allow Sell to open Puts, so calls are where I start.

I'm thinking of a buy/write on two companies I would have no problem owning, Roche Holding AG ADR and Amgen Inc AMGN. Both are listed as wide-moat, Low-value uncertainty stocks trading way below valuation at 5 stars, and have started to trend up.  I would buy and hold these, however I am already heavy in pharm and Roche has tax issues (Medtronic is what I'd like to hold in Health sector).

So these seem like no-brainers to sell to open a call contract.

Any thoughts, warnings, advice, good place for further reading on this idea?

Thanks, 

Ronn

Not being snarky but find a real brokerage that allows selling puts to open.

A cash secured put is the synthetically same as your buy/write setup. Except it generates more commission to your brokerage house. 

[ronn38]

Indeed, I'm looking into other on-line brokers now. But again, having never traded with options before, I only knew I was cleared to write/sell contracts. I didn't understand the specifics of how I was limited.

Live and learn--but the $6.95 trading fee's are ok, and some of their programs are nice for beginning investors.

R

[Kerim]

I occasionally buy calls when I have a hunch I want to play, and to add a touch of excitement while I watch the paint dry on my DG portfolio. I've concluded that -- IN MY CASE -- it is a sucker's game. It is hard enough to make good buy / sell decisions when there is NO time pressure. But the deep timing element associated with options makes it very stressful and especially difficult. After some medium-sized bets early on (for me), I started only playing with small sums, and haven't even done that in over a year. Here is a snapshot of every option I've ever traded. After all of that churn and time and energy, I'm very grateful to have broken even.

   

That said, I have never tried, and would still consider selling cash secured puts on stocks that I'd be happy to buy anyway.

[ronn38]

Kerim,

I'd agree--buying options successfully would involve some really insightful /intuitive readings of technical. Not really something as primarily a "buy and hold" guy I want to kill time learning more about that I do. On the other hand, selling puts and calls on stocks I intend to buy or trim anyway seems like a much less "intuitive" proposition.

For example, I bought EXR when it started its trip down at the end of summer. I bought a 1/2 position at $75, and then a full position at $70 (which is where I'm happy). So I have a position and a half. As it travels back up, I plan on selling the $75 position (first in, first out). Since I intend to sell this, and its ITM already, why not a sell a covered call?

I want to add to my position in V, but not at this price. I want the stock--and will buy more eventually-- but not at this price (if I can help it). So why not sell a put?

Of course, the risk is in what opportunities might present themselves while your stock/cash is tied up in the option. However, if its stock you intend to sell (but don't mind if you keep) or a stock you intend to buy (but not at this price), it seems the risk/reward profile is positive.

But again, my entire conversation is academic, as I’ve never done any of what I'm talking about ;-)

Ronn