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I wanted to share a strategy that has worked for me in the past. I have not implemented this in a few months because of a lack of time to watch the markets as fully as I would like.
First a summary if you have not written naked puts: When you buy a put you have to purchase it from someone. That someone, say me, sells a put for .50 cents at a strike price of $15.00. At expiration if the stock stays above $15 I keep the premium and the option expires worthless. This is what the call writer (me) wants to happen. If the stock closes under or at $15 I have to buy the stock. In order to buy it I first have to have the cash in my account to before writing the put, thus cash secured. Two weeks before options expire pick a stock you like, one you are in "groove" with.
Sell naked puts below the price of the stock. Wait two weeks and collect your monies. If you end up buying the stock (assigned) you are still happy because you bought it cheaper by obtaining the premium on the option. [b]Insight:[/b] Doing this type of transaction I noticed fully that the week of option expiration (this is the week as of this post) the markets are more volatile and typically pull back. I am looking further into this to see if I should be shorting or buying puts on lousy stocks at this time of the trading month.
The OIC is a great resource on option education and this link discussed writing puts.
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Rank: Elite
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I have only bought PUTS / CALLS. I wanted to learn more and will check out the site you mentioned.
Thanks for sharing this information. It sounds very interesting.
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Alex wrote:I have only bought PUTS / CALLS. I wanted to learn more and will check out the site you mentioned.
Thanks for sharing this information. It sounds very interesting. Just like anything with options when you deal with leverage (1 Option - 100 shares) you can expect more dramatic price moves. The reason of course of the appeal of options, but also highlights the risks.
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TraderJoe,
Did you run this option trading concept in May?
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Hey Patrick,
No, it seemed the likelyhood of getting assigned shares was high. I will sell a naked put to get asigned so that I buy a stock at a lower price plus keep the premium, but this go round there was not any one stock I wanted to hold.
Not sure about doing this in June yet.
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I bet writing some puts this past week carried more risk and some higher premiums.
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I write OTM CSPs each month with cash in my account and some times use some margin. I only do on stocks I am willing to hold and write CCs against. My target is .75 to 1+ percent return on cash. I like to be 5%+ OTM if possible. This provides additional income since the brokerage does not pay much interest on my cash. Hal
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