Has anyone tried this option strategy?...

[lindq]

Quote from Colonel_Blood:

Looks like covered calls to me and nobody would say that covered call writers all go broke eventually.

Ah yes, covered calls. Another brilliant strategy in which one buys the underlying and caps all hope of participating in a rally of the stock.

However, there is an advantage in this over naked puts, in that an unsophisticated trader has less risk of over-leveraging, as the account must at least hold the underlying.

But...if a trader has the intelligence and experience to regularly earn a "decent" gain from covered calls, then I submit that the trader would be FAR better off simply not covering with the short call, and letting the trade ride. The only exception would be in doing a specific short term buy/write on a stock that was calculated to maximize gains with that strategy. That has some merit.

 

[Trader Pete]

lindq, I thought that I was trying to be helpful in explaining why, what, and who should be dealing with naked puts as a means to gain premium or buy a stock at a lower price. But it seems like you are so against it at all. If that's the case, don't trade options and don't use this educational forum to rant about how you got crushed trading the wrong side of the market (you sound like the guy who thinks that "THEY" are all against you and that the short side of options were set up intentionally to make you lose money)? Like you've never purchased a stock that gapped down? You act like the only stocks that ever tank on bad news are the ones that people have sold short puts for? Or is that just you who's done so - too many times?

Your quote: "Whereas, if you had simply waited to buy the stock you may now have a nice opportunity." Since when does anyone know exactly when the perfect time to buy is? That's what trading is all about.

Sorry to be rude, but you obviously don't know how to trade options, the purpose behind the strategies, or you've just been smacked around too many times on trades that you shouldn't have entered in the first place. Unsophisticated traders should not be dealing with options at all. Sounds like you have taken to this advice already though...

 

[EliteThink]

As others have said, covered calls have the same risk graph as a naked put. Yet selling puts is considered highly risky and cc's totally safe by brokers. imo brokers encourage covered calls because it protects them from the client and that is the only difference in the advice. The smart money will always be selling options with good risk management. Good trading.

 

[dojibear]

Selling naked puts, speculators most likely will lose money, whereas investors most likely will make money. I think the difference is that most investors would have the appropriate cash in their accounts to buy the stock if it got exercised (they get not only the premium, but also a small % interest). Most investors also sell naked puts on cie they've done due diligence and want to have it for a long time.
One of the best time to sell naked put, in my case, is a stock I like to have for long term, just ripped and broke resistance, I'll sell front month naked put at the price I think will be the pull back. If it kept going higher, than let it be. If it took a few weeks to consolidate or retrace, I may be able to pocket the premium, and re-evaluate.
And of course, if disaster happenned, the stock drop to pennies, everyone: speculators and investors will lose $$, long stock or short puts. Risk is part of the game.

Cheers!!

 

[Colonel_Blood]

True about the 'less risk' involved with covered calls over selling naked puts and if I was a broker I'd heavily promote that to my clients over the selling puts.

More comms as well

 

[EliteThink]

What if your clients sold the same number of puts as you would recommend them to buy of the underlying and sell calls against?

 

[Colonel_Blood]

ET

Good question, depends if I liked them or not.

 

[lindq]

Quote from Trader Pete:

lind...don't trade options and don't use this educational forum to rant about how you got crushed trading the wrong side of the market ...

I'm sorry, I got confused. I was under the impression that this site was a forum for the candid sharing of information so that others can gain from one's experiences.

Obviously, I was misguided.

For anyone who is interested in pursuing this delightful strategy that guarantees easy, instant profits, and many nights of comfortable sleep, I would refer you to Wade Cooks "Stock Market Miracles".

Or, possibly to the Marque De Sade.

 

[Trader Pete]

You are right lindq, this site IS for "the candid sharing of information so that others can gain from one's experiences." It's just a shame that you put words in the mouths of people who actually trade these issues correctly (generally). No one here has "guaranteed easy, instant profits, and many nights of comfortable sleep." State facts, not fictitious opinions.

 

[klutz]

Quote from Trader Pete:

You are right lindq, this site IS for "the candid sharing of information so that others can gain from one's experiences." It's just a shame that you put words in the mouths of people who actually trade these issues correctly (generally). No one here has "guaranteed easy, instant profits, and many nights of comfortable sleep." State facts, not fictitious opinions.

If any beginners are confused as to who is right, Trader Pete or lindq; its no contest..............................lindq is the guy you want to listen to.

When you've been trading for 5 years then have a look at selling naked options, before that .......leave well alone