(12-01-2018, 01:29 PM)Kerim Wrote: Thanks very much, everyone -- this discussion is super useful. I completely agree with how you have laid out the situations, cg747. Like fenders, though, I feel comfortable with situation 3, given what decisions I would choose to make otherwise.
Another factor that crosses my mind is that I always keep a cash position larger than most would advise. I just sleep better that way. If my experience is anything like fenders', with most puts expiring without being exercised, then this could be a good way to generate income from the cash portion of my portfolio better than the 2 percent I can get at the bank. Yes, there is more work and risk involved, but I am eager to explore it further.
Thanks again!
Kerim
I was never cashy until about the time I showed up here. I was "all in" until about age 55. That was a better idea when I was 25
I am actually doing exactly what you described. About 20% of my port is cash returning 2.1% and I mostly leave it alone. Another 20% of cash has been put to work as put collateral. If I can do it without pushing trades I shouldn't make, I keep this 20% working as much as possible. The expiration dates are staggered and I can go shopping most any time I want as they expire. I don't want all of this cash invested, but if it happens it happens. I usually sell a few calls on long positions I have low confidence are going to run to the moon. Another small income stream. Mostly I sell calls a ways out of the money though. I am not trying to churn my account like a day trader. Put if a small amount keeps rolling over I'm OK with that as long as it's working.
On a side note I tend to compartmentalize my money. Year 4 and 5 from now, I need $25K per year extra income so I can start my retirement for real before my last pension kicks in year 6. I intend to fund it with an extremely short term bond fund I am feeding with nothing but put and call premiums. It's fun to watch it grow without moving any of my equity money.
It sounds like you are going to do this with more than one stock. I suggest you do so you get a fair assessment of what to expect. A single position won't do it. I suggest a few more fairly conservative stocks in the $40-70 range. They won't get cut in half and sour you starting out. I've had profitable fun with MET, SO, T etc. Most very low priced stocks have too small premiums if you pay any commissions at all. (Ford and GE won't work without selling a lot of contracts.) I've had really good luck with MMM, HD, and AAPL, even in all this volatility. But now you are talking about some serious money to buy 100 shares. Save the expensive stocks for later. Maybe paper trade a few and watch the option prices. A stock that will swing $10+ in a few weeks is a different animal. I like them because I can sell puts way out of the money for a nice premium. And they already are, or will be core positions anyway. I put myself of some risk of owning an extra position in a stock I love. I can lighten back up on it when the opportunity arises. Sell calls or just dump 50 shares when it runs back above even. Can't stress enough you have to do this with stocks you truly like or someday the market will put you in an uncomfortable spot you.