12-01-2018, 10:10 PM
(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!
yeah it's definitely an interesting method for getting a little bit more from your cash. I'm quite new to the put game and I use it purely to collect some premiums for increased cash flow. It has worked ok so far but I think I've only sold 3 or 4 puts all within the last couple of months.
I tend to use covered calls much more often. A good example would be T last week. Bought 100 shares on Tuesday for $29.97. Sold a Friday call with a strike of $30, got $32 as premium. Obviously it got exercised since T was trading above $31 on Friday.
So I tied up $2997 for 4 days and made $34. (That is $32 from premium, $3 from increased share price, - $1 from commissions) Over 1% in 4 days, that is pretty cool when annualized. :
But there is a good reason I chose this example, so you can also see the downside. I would have made around $123 if I had not sold the call and instead just bought and held T for 4 days. But the calls make it a much more safe play as you collect the premium no matter what.These covered calls I've been doing for well over a year now, with a maximum of $10k in at any time. So far, so good. I've made some costly mistakes along the way and there have been a couple of months where the cash flow has been negative but overall I've managed to make a good profit.