Cash secured puts - Stocks or ETFs
- Thread starter danjuma
- Start date
I would sell cash secured puts on ULs that you wouldn't mind owning. Not popular here you can then sell the call against the shares you don't mind losing. I do this in my 401K. I'm not getting rich, but my cash reserves are earning a little income (maybe 1 to 2 % extra a year, maybe 5 to 6% on the money at risk)
Also, the higher the IV. the more credit you collect.
Also, the higher the IV. the more credit you collect.
Doesn't matter. The question you should ask yourself is "am I fine with owning this asset in my portfolio for 5 years or longer?". If the answer is yes it is ok to to do a CSP trade.
Then you sell cash-secured puts or naked puts the possibility exists that you may get assigned shares for a loss and it may take a long time until the asset will get back to a break-even price where you can get out.
What if the stock or ETF drops rapidly and are at -5% then the option expires, what will you do? how will you act? ask yourself these important questions first before getting into the trade.
This mentality only works if you goal is to not make money.
Why would you ever own a stock that you only “wouldn’t mind owning?”
Either you believe a stock will go up, down, or you have no opinion. If you think a stock will go up, you should buy it. If you think a stock will go down, you shouldn’t sell puts on it. If you have no opinion, then why would you trade anything based on it?
Investing/trading should be an active endeavor. You don’t own stocks because mr market made you buy them.
Selling put is essentially a moderately bullish bet. You are betting that the underlying will go up moderately so your put will expire worthless. It is a limited gain unlimited loss (up to if the underlying is zero) position. The price you get depends on the market's opinion of the underlying, the volatility of the underlying, the strike price and the DTE (expiration), so which is less risky is not the correct question to ask.
Looks like you have been around since 2008, you should know then that there is no edge buying or selling options, the risks are all priced in. In aggregate, you only make money selling put if your opinion is better than the market makers' and the market's opinions, otherwise when you play enough times, you will net about zero minus the slippages and option commissions. On individual contract, it is by chance based on the probability.
I know this is not the answer you are looking for. As a newbie, I learned my lesson the hard way: in options there is no free lunch.
Looks like you have been around since 2008, you should know then that there is no edge buying or selling options, the risks are all priced in. In aggregate, you only make money selling put if your opinion is better than the market makers' and the market's opinions, otherwise when you play enough times, you will net about zero minus the slippages and option commissions. On individual contract, it is by chance based on the probability.
I know this is not the answer you are looking for. As a newbie, I learned my lesson the hard way: in options there is no free lunch.
What if your view is that you would be interested in owning at stock or ETF at 5% or 10% lower than today's price? Let's say XYZ is at 50. If you would be willing to buy it at 45, why not sell at CSP with a strike at 45 and collect a little premium?
Of course you can. But you are talking about what if. As I said, CSP is a slightly bullish bet. Why own if you are only "slightly bullish"? It should be very bullish and if you are very bullish, you shouldn't do CSP.
IMHO, if in your opinion the stock is a good bet, you are better of just purchase it. If you think it will go down lower, wait for it to get there. Mind you, that is just my amateur retail's opinion, not a professional view.
If you want more up side, ask @Handle123 how to apply his approach to "dance options around the stock".
People seem to ignore the fact that by selling the put, you CAN NOT buy the stock when it gets to the level you were jizzing all over yourself to buy it. Then the move retraces, makes new highs, and you own nada. Seen it several times.
If you want to trade options for a living, you need to change your mindset. You cannot blindly write put, CS or naked, and expect a profit or do better than buy&hold, you need to have an opinion/method. Books like "Wall Street Money Machine", "Generating extra income with options" are doing you a disservice.
I don't want to trade options for a living. Just interested in generating a little extra income on stocks I am interested in owning. I realize there is no such thing as a free lunch.