I sold Deep deep deep in the money puts

Quote from xflat2186:

There is no such thing as a free lunch. The margin used to be naked short the deep put would be the same as if you laid out the money to buy the stock and sold the 40 call, there is no free money there. The dividend you’d collect is priced into the put and into the long stock plus short OTM call. You just crossed a bigger bid offer spread and gave someone else the option of exercising the put.
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That's not correct. Margin on stock is 50% and for naked puts is 20%. When you adjust for all the in/out of the money and apply premium received, a covered call is approximately 2-3x as expensive, margin wise.

But you are correct in that there's no free lunch with one covered call versus one naked put. Everything is priced in.
 
LOL 0 volume today for those options. Talk about thinly traded options. Interestingly enough LLY jumped 0.87% after hours today.

I have not seen any news to warrant such a AH jump.
 
Quote from spindr0:

You're not collecting any dividends up front today. You're getting a higher put premium but it's maybe 60% of the total dividends b/t now and expiration.

The further out in time you go, the less premium per day that you receive and the closer to ATM, the more time premium per day. In that vein, I think the sale of the Jan 2012 35p would be a better choice. Tho you make a little less per day, you have $7 less risk.

IMO, an even better choice would be the Jan 2011 35p which gives you about the same cost if assigned but a better profit per day if unchanged and again, with less risk. If you get lucky, maybe you get to repeat a similar put sale again next January.

Obviously, the 40 put is superior if LLY runs up and you get to keep the entire premium but from a risk/reward perspective, I think it's inferior.
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You and I have the same DNA. I agree with you. You are a seasoned option trader who have been through risk/reward dilema
 
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