Anyone using covered puts

[fenders53]

(02-18-2019, 06:03 PM)NilesMike Wrote:

(02-18-2019, 05:27 PM)Kerim Wrote:  
 Of course, the question is risk. I love the idea of selling insurance in this manner, but I know enough to know that I have no idea how many different ways I could get creamed.

Everyone comes back to risk when discussing selling options. Good to be risk aware, but...

You like XYZ stock, it's trading for $45. You buy it @ 45 and now it's 40, you like it a little but still wish to keep it so all is good.

I like XYZ stock too and sell a 44 put for .85. Stock falls to 40, maybe I'm assigned maybe not. If I am assigned, my cost basis is 43.15.

Now who has more risk?

If we both decide that we no longer like XYZ and wish to exit.
I would sell a 45 call for say .80.
You would like to get out at 45 also for a scratch.
I collect 1.85 on the stock and .85 on the call. 2.70 profit on some minor gyrations of XYZ.  6% return in 2 cycles. 36% annualized

Now, who has more risk?

The only risk is that XYZ shoots like a rocket after I sell the put and I miss the upside. I like that trade off.
Good luck to all.

You know that's exactly what I do as well, but you did leave out some of the exit risk.  Mister Long sells at 45.  I sell a call that day and get my 85 cents, then my company is accused of selling asbestos laced soda pop.  Every day in a stock represents risk.  They can leave on a moments notice, we have to let some time ride out to claim the 85 cents.   

But I am still with you on your thesis.  Option is just a word that invokes fear, and done correctly it is irrational fear.