I was reading back through this thread over the weekend, specifically about options.
Blazin
, you mentioned you focus on selling puts. I was reading on strategies around that and was just curious on if you'd share yours? What I gather is you collect premiums on stocks that you think are long term bullish but may dip below the strike price in the short term, so you're basically double dipping: Collecting a premium on a stock that you would have put in a limit order for anyway if it had a small dip. Are you doing cash covered puts or naked puts? Thanks for any info
I only sell puts on names I want to own and at strikes that I want to own them. Investors often look at a stock and say I would buy that at X then sit and wait. By selling puts on that stock I'm participating in it's upside even if it never dips to my price or I get the stock at the price I wanted plus the premium.
The danger is that the price falls below the strike and you enter the position in the red. I don't see that as a being a danger of the option in itself but rather general risk of investing. You would not have had the opportunity to take advantage of that lower price unless you were being dishonest with yourself about I want to own a stock at X price. So I think people who are able to do an above average job of removing emotion from investing it's a suitable strategy.
In practical terms many investors say they want a dip then when that dip comes they are frozen by current headlines and don't act. I view selling puts as one notch down on the risk curve versus just owning the equity. I'm always doing it but during times that I'm more cautious I'm selling more puts and buying less equity. When I am highly bullish like this summer the majority of my portfolio was stocks, as I've entered a period of more cautious stance (Sept/Oct) I have sold more puts and hold less equity.
There are certain companies that I trade around, these include JPM, JNJ, WMT, KO, PFE, VZ, DIS and then I also trade index such as QQQ, SPY and IWM. I may hold them for a pretty long period, they may go through a time I'm just selling puts on them, and periods I'm holding them and selling calls against them.
My trading plan has worked very well in this environment, I'm at a portfolio high today and have solid returns for Sept in a down market, all without shorting the market (which I don't do).
A big step for me was getting rid of fear, the names I trade you can't shake me out of. I don't sell for a loss, I do occasionally roll an expiring option that may be in the red. Getting caught for me simply means owning some stock that I will continue to trade around. I certainly have at times had positions that I didn't like, I tend to be patient selling calls sometimes for months reducing my net cost until reaching an acceptable exit point.
Just this weekend someone paid me $1,000 in premium Friday that the market wouldn't drop 5% over the weekend, and I'm glad to help them sleep at night.
