Put Writing timing

[Put_Master]

Quote from Whistlingleaf:

As a noob you are better off with covered calls - I know the experts will disagree with me, but they're wrong.

New investors can easily make judgment errors when calculating margin, and if a stock dumps don't know how to sell or fix their situation.

Buying a stock and then selling a covered call really makes you think more about actually owning a stock. I've got a friend who sells naked puts on high IV, lots of premium, no-drug-yet Biotechs and constantly gets nailed when stocks crash, and then says "I didn't want to buy that" ...

Rather than buying the stock and selling covered calls, I would suggest doing a buy/write.
That is the equivalent of selling puts.
Just as with selling puts, the buy/write strategy allows you to select your desired strike and credit BEFORE the trade is initiated.
If you can not get your desired strike and credit simultaneously, the trade will not be initiated..... until you are guaranteed both.

If you have never set up a buy/write order, i would suggest having your broker walk you through the 1st few, just to be sure you are doing it correctly.
And of course, ask questions on ET.

The only downside to doing a buy/write, vs a naked put is, selling a naked put is sometimes a little easier to get a fill on.
That's because when you sell naked puts, you are walking in the front door. With buy/writes, you are walking in the back door.
But either way, you are walking into the same house.
They are both "equivalent" strategies.

 

[Took2Summit]

Something I havent seen anyone touch base on is commissions.

Let's look at MSFT, with buy write you generally have 2 commission costs, one for 100 shares of MSFT, one for the call. let's say you have $5 commission charge. that's $10 total. for a MSFT 1 month away and 1 strike higher you generally will get like .60-.90 cents which for 1 contract will be $60-$90..you just paid more then 10% in commission. with a put you just have one commission and will still get the same position and similar .60-.90, but now the commission represents much less of the sale on the contract.

 

[Put_Master]

Quote from Took2Summit:

Something I havent seen anyone touch base on is commissions.

Let's look at MSFT, with buy write you generally have 2 commission costs, one for 100 shares of MSFT, one for the call. let's say you have $5 commission charge. that's $10 total. for a MSFT 1 month away and 1 strike higher you generally will get like .60-.90 cents which for 1 contract will be $60-$90..you just paid more then 10% in commission. with a put you just have one commission and will still get the same position and similar .60-.90, but now the commission represents much less of the sale on the contract.

I agree that selling a put is prefered over a buy/write.
But the issue being debated was whether simply selling covered calls was prefered over selling puts.
And so my point was, "if" you are going to sell covered calls, setting it up as a buy/write, vs a buy and then write, would be the equivalent of selling a put..... because the trade is not initiated unless you are guaranteed your desired strike and credit.
That being, if your account is not approved for put selling, then the buy/write is the equivalent.
And while there is an extra commission involved with the buy/write vs selling a put, you get to keep any dividends paid with the buy/write.

 

[Beer_me]

NooB Question:

So is a buy/write just a means of entering a covered call position using one order to both purchase the underlying and sell the call?

 

[Put_Master]

Quote from Beer_me:

NooB Question:

So is a buy/write just a means of entering a covered call position using one order to both purchase the underlying and sell the call?

Yes.
And if your stock is above your strike on expiration day, then the stock is gone, and you are back in cash,.... with your profit.
If the stock is below your strike on exp day, then you keep the stock, keep your credit, and you are free to either sell it, keep it, and/or write another call on it.

The only reason to initiate a buy/write, is if you are not approved to sell puts.
If you are aproved to sell puts, you may be better off selling the put, because there are times a buy/write is a little more difficult to get filled than simply selling a put. Because 2 things need to match up for the order to get filled. This is assuming you want to earn the same credit and strike, per unit of time, as you would for selling a put.
It is a great strategy alternative, if you are not approved to sell puts.

 

[bogeyman89]

if you look at the dollar amounts, your highest decay options are the weeklies.
look at tsla versus bp to look at dollar amounts for a 6 day put sale.

obviously you would look at selling 35 to 50 delta puts.

 

[newwurldmn]

Quote from bogeyman89:

if you look at the dollar amounts, your highest decay options are the weeklies.
look at tsla versus bp to look at dollar amounts for a 6 day put sale.

obviously you would look at selling 35 to 50 delta puts.

The theta is directly related to the gamma you are undertaking. So it comes down to your tolerance for gamma risk.

 

[lindq]

Quote from Whistlingleaf:

As a noob you are better off with covered calls - I know the experts will disagree with me, but they're wrong.

New investors can easily make judgment errors when calculating margin, and if a stock dumps don't know how to sell or fix their situation.

Buying a stock and then selling a covered call really makes you think more about actually owning a stock. I've got a friend who sells naked puts on high IV, lots of premium, no-drug-yet Biotechs and constantly gets nailed when stocks crash, and then says "I didn't want to buy that" ...

An excellent post. But most won't appreciate why until they've made the errors you referenced. And then it is too late.

If a new trader feels he must get involved in an option strategy - a mistake to begin with in my mind - shorting puts on equities is a bad move. Very easy to get overconfident and over leverage, leading to the possibility of severe losses when the market tanks under you.

Doing a buy/write at least helps make one aware of their total exposure.

 

[noob_trad3r]

I only write puts on SPY.

 

[diaoptions]

Quote from RobtF:

If I wanted to write puts for income with portion of portfolio (on stocks I wouldn't mind owning) is there a sweet spot, say two, three weeks before expiration?

I recommend selling the following month options, in this case November. This thread has some good info: http://www.elitetrader.com/vb/showthread.php?s=&threadid=247829 Take a look at United States Oil (USO), they are a good candidate for put selling, maybe 3 strikes OTM.

Also be cautious of some advice you get on EliteTrader, there are a few wackos here.