Making 1%/week selling covered calls

What about writing cash-secured puts?

The GSS NOV09 5 put is selling for $2.05, IV of 101.48%, which is 33.77% above the stock's 30-day HV.

The price would have to drop to $2.95 on expiration for it to be profitable to exercise; it's currently at $3.62.

I should make 35% if the share price goes up, or at least doesn't drop below $2.95.

The Aroon oscillator just crossed above 0, so an uptrend is starting. And the Ultimate oscillator also crossed above 50.

And gold prices, GSS' main product, are rallying.
 
Is this assuming that you actually want to own those shares? If not, unless GSS rose about 40% in the next 2 weeks, if you sold a PUT at $5, you would. Unless, of course, you didn't sell that back at a profit, but it looks like there could be a pretty hefty bid/ask spread with an open interest of only 27, so a good portion of your profits would be going to the market.
 
Quote from TheGoonior:

Is this assuming that you actually want to own those shares? If not, unless GSS rose about 40% in the next 2 weeks, if you sold a PUT at $5, you would. Unless, of course, you didn't sell that back at a profit, but it looks like there could be a pretty hefty bid/ask spread with an open interest of only 27, so a good portion of your profits would be going to the market.
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The stock does look like a good investment. And I could always then write calls against it to get income and reduce my cost basis.

What about the Jan10 5 put? It's trading at 91.40%. And it's priced at $1.60, so GSS would have to drop below $3.02 for it to be profitable to exercise.


And it's open interest is far larger at 355 contracts.
 
GSS closed at 3.63, the Nov 5 calls traded at 5 cents today so esentially they're worthless. That means the Nov 5 puts should be priced at 5 (strike price) less the stock price of 3.63 and maybe at 2.5 cents for the cal value. The price you posted is either old since they didnt trade today that price may be several days old or there is a dividend or something else but I dont see any of that either.

The 5 put basically should have very close to zero in time premium and therefore selling them in the cash secured scenario is nothing more than buying the stock and sellnig the call for zero or perhaps a nickel.
 
Quote from DarkProtoman:

The stock does look like a good investment. And I could always then write calls against it to get income and reduce my cost basis.

What about the Jan10 5 put? It's trading at 91.40%. And it's priced at $1.60, so GSS would have to drop below $3.02 for it to be profitable to exercise.


And it's open interest is far larger at 355 contracts.
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355 open interest is tiny, yea its more than the 27 on the NOV's but its still nothing and if you at the volume in those series they rarely trade. The Jan 5 call has 15 cents roughly of time premium thats the maximum you'd be making the rest is intrinsic value which is no different than buying the stock and shorting the call.

By the way anytime the stock is below the strike at expiration you will be assigned and it is profitable to exercise them.

There is really nothing premium wise in those options Nov or Jan and the IV on cheap (real dollar wise) stocks is always high.
 
Yes, you could write covered calls, but the problem is that for low priced stocks like this, your strike prices are so far apart that you have to go quite a ways out to make it worth your while: the deep in the money calls have almost no time value and the out of the money calls provide almost no downside protection. So unless you have some other powerful reason for owning the stock and are just looking to generate some extra income, it looks too risky to me.
I stay away from options on stocks under $20 for the most part (unless they are an ETF, where the strikes are $1 apart) as there's just not enough flexibility in it.
 
What about Sprint?

The Feb10 3 put is selling for $0.55, w/ an IV of 75.32%, which is above the stock's HV of 42.90%. It's time value is $0.38.

And it's currently oversold by a lot of indicators.

Your opinion?
 
My advice to you is to take your plan which seems to have been given less than 1 minute of thought and add an extra 5 minutes to think about the ramifications.

At 1% a week that is just about 68% anualized (compounded weekly for 52 weeks)

At this point you should have
1) done some quick research to see how a 68% annualized return compares with others who seek high returns (i.e. the professionals).

2) Realize that your 68% annualized return is way above what even the most successful hedgefunds are able to consistently turn in year after year.

Now we reach a fork in the road. You could have...
A) said "wow how is it that these 'professionals' even bother showing up to work every morning, knowing that sub-68% return is really for amateurs?"

b) said "Hmmm...maybe there is something more to this..."
 
Are you trying to acquire the shares or just trying to sell the put and let it expire worthless (or buy it back cheaper)?

In my experience, cash secured puts are used on a stock that you want to own at a better than current price. Rather than just throwing a limit order out there, you sell cash secured puts on a monthly basis and this reduces your cost average. Assuming there is no huge gap down, eventually you'll get the stock, but it will be at a discount (hopefully) since you've been collecting put premiums along the way.

I must confess that I pay no attention to implied or historical volatility: I can tell from the chart how volatile things are. I also compare the premium (as a percentage) of an ATM, front month option versus it's current price. Anything over 4-5% means we're in roller coaster land.

It is oversold by lots of indicators, but it's also dropping like a stone on big up days like today and hasn't participated in any of the recent rallies of the general market. That: 1) tells me it's sick and 2) it's out of sync with the general market so it's tougher to read.

I've no clear idea on what to do for that one, so I'd pass on it.
 
Quote from nelsanity:

My advice to you is to take your plan which seems to have been given less than 1 minute of thought and add an extra 5 minutes to think about the ramifications.

At 1% a week that is just about 68% anualized (compounded weekly for 52 weeks)

At this point you should have
1) done some quick research to see how a 68% annualized return compares with others who seek high returns (i.e. the professionals).

2) Realize that your 68% annualized return is way above what even the most successful hedgefunds are able to consistently turn in year after year.

Now we reach a fork in the road. You could have...
A) said "wow how is it that these 'professionals' even bother showing up to work every morning, knowing that sub-68% return is really for amateurs?"

b) said "Hmmm...maybe there is something more to this..."
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I have taken fork b, and realized my plan probably is crazy.

I'm happy to keep pace with the market.
 
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