05-05-2020, 09:58 AM
Another detail for consideration. This is an income strategy that you rinse and repeat until you end up long on a market dip. If the market treads sideways or up it's normally just an income game. Market nose dives and you own a bunch of shares. Mike had to get on me about taking unnecessary risks with little reward....
You sell 45 day contracts of XXX, 1.00 premium and the stock's annual dividend is .75. A few days or a weeks later the stock pops on good news and you are sitting on a put you could buy back for .15 or so a month before expiration, or you wait a month for it to expire worthless. You got your dividends in the bag and it's highly likely you are not getting assigned. Buy it back and redeploy the capital. You might even sell a new option on the same stock at the same DTE at a higher price if you really want the shares.There are times I am busy with too many trades and let an option slowly expire, but sitting on options for weeks when you have a quick 75-90% profit is not efficient. The risk of doing nothing may be small, but the risk/reward and opportunity cost is just not there. Look for the next "dividend" to scalp instead.
What I just described will happen often in an up market.
You sell 45 day contracts of XXX, 1.00 premium and the stock's annual dividend is .75. A few days or a weeks later the stock pops on good news and you are sitting on a put you could buy back for .15 or so a month before expiration, or you wait a month for it to expire worthless. You got your dividends in the bag and it's highly likely you are not getting assigned. Buy it back and redeploy the capital. You might even sell a new option on the same stock at the same DTE at a higher price if you really want the shares.There are times I am busy with too many trades and let an option slowly expire, but sitting on options for weeks when you have a quick 75-90% profit is not efficient. The risk of doing nothing may be small, but the risk/reward and opportunity cost is just not there. Look for the next "dividend" to scalp instead.
What I just described will happen often in an up market.