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Conservative option strategies, what did you buy or sell today?
First of all, NilesMike please help me with this, but r Refrain from taking it to fancy option levels. Let's skip the complicated "Greek" math for now as it isn't helpful for noobs. I have been asked to start again from the basics. We are just explaining things here, not trying to amaze as that will just discourage the folks we are trying to help. Feel free to post up a simple one contract trade to help explain this.

We gotta start somewhere and I just executed a T put sale just now as Stockguru asked about. For some context I own 260 shares long. I would be comfortable owning 500 shares and less comfortable owning 1000. I have options expiring most every week. I prefer to spread the expirations out as it is just easier to manage. You could sell 10 contracts but we are selling one for simplicity of explanation. I believe the likely bottom for T is 26 in a rough market. I believe the dividend is secure. It goes Ex-DIv in a few days which is ALWAYS a consideration when buying or selling option. T RSI continues to be oversold. Overall this is a decent risk/reward trade. I would prefer to execute it post dividend but this is just an example.

Sold a T put strike 28 expiring OCT 23rd. It is out of the money so the $57 premium is all extrinsic value. Does everyone know what that means? Don't be afraid to ask for explanation of any term used here.

Mostly I did this trade for illustration as the market is up today, but the date fits into my plan well enough. I have T options expiring most every week. I don't stack up 5 or 10 on one date. Just a personal preference, not right or wrong.

If T is over $28 and we hold it to expiration this options expires worthless and we do it again. If T dips below $28 as expiration nears we aren't stuck but we have to make a decision. Spoiler alert... if T runs up $2 in a week we may buy it back very cheap and move on to the next opportunity. If it goes into free fall we'll manage the option for better or worse. When things go bad you can save yourself half the time, but this isn't risk free. You have to be comfortable with the worst case scenario. I may be forced to buy 100 T shares at $28, but I won't do that if I can roll it down to a somewhat better entry. Option premiums almost always far exceed dividend returns. If you do this with many stocks you WILL be managing a few trades every month that didn't go your way. It's a pain some months but worth it because the income FAR exceeds dividends most months. It's the only reason I bother with this strategy.

Speculative option sells are more lucrative. We'll do that when the time is right
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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 $$$)

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.
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You also need to check the contagi's value proposition. I usually also check( only on big options) if current value/# of days to expiration is more in current option I have or the new one I want to roll forward to.
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(10-05-2020, 01:22 PM)fenders53 Wrote: First of all, NilesMike please help me with this, but r Refrain from taking it to fancy option levels. Let's skip the complicated "Greek" math for now as it isn't helpful for noobs. I have been asked to start again from the basics. We are just explaining things here, not trying to amaze as that will just discourage the folks we are trying to help. Feel free to post up a simple one contract trade to help explain this.

Missed the part of posting an example.

KO Bought in July for 45.35. Looked like good support area.

9/2 I sold a 50 call for .50 because 49/50 looked like a top or resistance area, expiring 9/11.

9/11 the option was worth .30 so I bought it back to avoid early exercise because 9/12 was ex div. Collected my .20 option money and .41 dividend.

9/14 the stock was 51+, I sold 52.50 strike for .81 expiring 10/16.

9/21 KO dropped to 49, bought call back for .39 (keeping .42)

9/28 KO was at 49.00. I sold OCT 16 $49 call for 1.26

10/1 that call was only worth .86 so I bought it back (keeping .40)

3.1% return for the month from options/dividends.

It doesn't take a lot of time, check prices a couple times a day on phone to keep current or catch the market news on the radio, that's it.
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(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 $$$)

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.
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.  

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)
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P.S.  I am about 10-15% too much cash today.  I would really like to sell a few puts on a stock like MSFT, QQQ etc, but the time isn't right.  Discipline is VERY hard. Hopefully later in the week I can share a more exciting trade.  I have a couple positions I will like consider rolling.  I'll debate that with Mike here.  The election, stimulus, unemployment rate etc, and all the associated drama tells me we will have some market volatility.  Right or wrong, you gotta have a thesis to feel more comfortable with your trades in the short-term. Forcing a trade can cause more bad decisions a week or two from now. This isn't the same as my DGI port. I can't buy and close my eyes for a year. Options expire soon.
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(10-06-2020, 08:08 AM)fenders53 Wrote: Right or wrong, you gotta have a thesis to feel more comfortable with your trades in the short-term. Forcing a trade can cause more bad decisions a week or two from now.

There is no one size fits all. My strategy is an amalgam learned from several people and fits my style.

People should take away bits and pieces and add their own seasonings-LOL
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(10-06-2020, 08:46 AM)NilesMike Wrote:
(10-06-2020, 08:08 AM)fenders53 Wrote: Right or wrong, you gotta have a thesis to feel more comfortable with your trades in the short-term.  Forcing a trade can cause more bad decisions a week or two from now.  

There is no one size fits all. My strategy is an amalgam learned from several people and fits my style.

People should take away bits and pieces and add their own seasonings-LOL

I'm convinced what we are doing is sound enough that you don't have to get it perfect to live a happy investment income life lol.  I am no investment pro for sure, but I'm sure I am well over 1000 trades the past two years.  If it was a bad idea I'd  likely know by now.  Smile  As boring as it is, running through some T and KO trades is probably best as they won't freefall in a week no matter what the market does.  And I want to keep emphasizing this is NOT all we do with our ports.  While I think I mostly could just do this with my entire port, that is an awfully bold statement knowing the market could crash some month soon, and stay down for years.  If the market flies to the moon this strat will usually underperform going all in long instead.  We'll navigate the big swings when it happens.
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I am going to have to make a move soon or my income is going to be down this month for the first time in awhile. This patience thing is hard. Smile I was much more content to leave cash undeployed when I could get a 2% APR yield not so long ago. This is one disadvantage to mixing in a lot of 2-3 week option sells in with my strategy. I very much like having considerable money to sell new options with every Friday, but there are definitely times I am stuck sitting on my hands. Plenty of long shares so not like I am missing the fun on up days I guess. I find myself hoping the market has a few bad days every Monday or Tuesday so I can sell puts. Smile On a side note I've had a lot of success the past six months with some more speculative options like WY, OLN etc. I think I am going to stop pushing my luck and put a little more emphasis on my core positions. The premiums won't be as good but I think I'll feel more comfortable getting stuck with blue chip shares. I love the volatility but I'll sleep better getting stuck with excess PEP and JNJ shares. Smile
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Fenders you have brought it up a few times that you have made ~1000 option sells/trades in the last 2 years. Is that the time frame you started making option trades? What got you started in options?
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