Quitting day job to collect weekly premiums - realistic?

Pekelo said:
Nope. First af all they don't go bankrupt in 2 days. (well, at least not usually) Somebody mentioned Enron, it took a full year for the stock to drop to zero, that is 12 monthly premiums collected on a falling stock, so you would have gains too.

Second, if you diversify, most likely you only get unlucky with 1-2 stocks and you don't even lose all on that, so your overall losses should be limited. You could also abandon the falling stock at a predetermined price...

Now it is possible that for a year or two you won't have any income or even a loss, so you should plan accordingly, to survive the lean years...
More...

Thanks this is right on. I think I get it now; in the worst case scenario it would be something like I get assigned, the SEC announces the company is under some accounting fraud, forced to sell the stock at a huge loss. Diversification would do away some risks on this but yes the loss would wipe out alot of gains.

Covered call is easy to understand but hard to practice in real world. You will run into dilemma let say if you long a stock at 100, short 110 call for 1, if the stock drop to 70 at expired and 100 call for next expired worth almost nothing. The question is do you want to short 90 call for 1? If you do this, and if the stock rally back to 91 during expired and you will lock in loss for sure.
More...

I actually have been doing covered calls before this and to answer your scenario, I short 110 again. I know I get peanuts, but its basically turning into a buy and hold on this big blue chip. This actually just happened to me in Oct, with the FANG stocks. I bought before Trump's victory and you guys all know what happened to the FANG stocks. I stuck it out and just kept selling even though its very little. Now look at their prices. Only FB is still doing terrible.
 
lylec305 said:
Would enron pass blue chip dividend aristocrat test?
More...

The point with the Enron example was that it went into bankruptcy in an orderly fashion, taking its sweet time so one could have written plenty of calls on that.

So let's say you diversify into 5 stocks, 3 of them do 10-10% return, 1 breakeven and 1 goes bankrupt like Enron. If the premiums make back at least half of the loss on Enron, your overall diversified performance loss is only -4%. Not bad counting you picked a bankrupt loser in the group.
 
You worst case scenario is either an overnight scandal (e.g. VRX-style) or, even worse, a correlated market drop due to some macro-news. Not an impossible scenario. This said, if you pick rich vol, diversify and control the overall exposure there is no reason why this would not work. Personally, I'd be looking to sell event vol in a highly diversified manner, e.g. earning announcements, various clinical trials etc - you still might get carried out on some of the events, but it's uncorrelated risk premium.

PS. I think 15% is pretty aggressive, but 10% per year is not that horrible either.
 
Pekelo said:
The point with the Enron example was that it went into bankruptcy in an orderly fashion, taking its sweet time so one could have written plenty of calls on that.

So let's say you diversify into 5 stocks, 3 of them do 10-10% return, 1 breakeven and 1 goes bankrupt like Enron. If the premiums make back at least half of the loss on Enron, your overall diversified performance loss is only -4%. Not bad counting you picked a bankrupt loser in the group.
More...
You gave me some coaching in a different thread regarding selling cash secured put then if assigned selling covered calls. You mentioned that under one scenario things could go bad: in a whipsaw(?) market.

I think you were right. Manage carefully this can be a profitable strategy. One trader I know used this strategy with just one stock and he did very well since the mid 2000. But he did not do it mechanically. A lot of thoughts and analysis went into his trades.
 
tommcginnis said:
I have a friend who does what you seek. He started with high 2s, and may reach 1mm next year. This is over a decade or more. He was a full-time attorney, now his practice is "a hobby."

I don't like it. I told him just this past week that he practices in The Black Arts. I am very much biased against having a long or short position in the market (short of a 10-15 year horizon). But he makes it work, doing much as you describe (enter via puts; worked short calls). He works the name-brand stocks, but he also owns long term those with high dividends and/or very attractive fundamentals. And by "long term" I mean, when his energy portfolio took a swoon, he didn't bat an eye. When his WYNN went south, he didn't get nervous. When .... well, you get the idea.

It ain't for me. But he considers index spreads to be gambling. "Black arts" even.

And there we are.

I would advise one thing: put your household budget into tiers, and decide, for example, if an extended bear hit, what things, IN WHAT ORDER, would you address in everyday household spending. Having that plan ahead of time -- just like exit plans in trading -- takes that Deer In The Headlight look away.
More...


Did he drop from 2 million to 1 million? Im not following the second sentence.

Thanks
 
Southampton said:
Did he drop from 2 million to 1 million? Im not following the second sentence.

Thanks
More...
Poor (over-quick) writing on my part.

As a matter of fact, he *did* take quite a bath in his first year of "active" trading. Made some coin, got cocky, lost half of his account *while* leveraged to the hilt with margin calls.

Buckled down, pounded his fist glumly with "It'll take me 2 years easy to make this back!" And got about it. I forget the dates and times now, but either 1 year or 2 years in, he had repaid all his (crisis-induced) bank notes, and was 80k ahead.

Became a religious tyrant, and wails fire *and* brimstone upon me, whenever I tarry from the True & Righteous Trading Path. (In his opinion.)

Some times, he is insufferable. But there is a phrase I had burned into my mind early on, that I have shared with him, and that he *sometimes* makes good use of:

"Never mistake your account balance for intelligence."

When either of us do that, we also sometimes revert to an ancient piece of wisdom, by waving our arms pendulously around our crotch, and in a low, low voice, singing,
"Swingggg lowwwwwww, sweet charrrrrr -i-otttttt......"

Oh yeah! So.....
So yeah, he took a 6-figure hit, brought it back, kept going, and is now kissing a 7-figure account like a blushing bride. Given the ups and downs of things, it certainly won't be 2016 (I would've heard), but 50|50 between 2017 and 2018. (Barring he doesn't continue moves like holding TSLA short calls @212.50, and watching them spike ITM last week. Sheeesh.)

And this guy thinks *I'm* scary, wit' me litt'l SPX harvests every few days. Yeahhh-hhhhhh.

And just to flesh it out a bit more, he was a pretty involved fundamentals-oriented, dividend-hunting, *investor* when we started talking markets a good....10-15 years ago. And a econ business school grad. No flash-in-the-pan, but a hard working guy.

And a hasher.

On-out.
 
Last edited:
mdwreader said:
Hi All

Suppose you have a working capital of about 800k. Now you do weekly cash secured puts on stocks you are confident to own if assigned, and if assigned sell calls until the stocks are called away. Of course this only works if the market does not crash like in 2000, 2008, etc. Is it realistic to think this can become a primary source of income?

Building on this, what is the equivalent strategy in a total bear market for the above? I don't want to sell any call spreads.

Thanks for your help.
More...

I sent you a PM. I would stick with Cash settled index options and choose a CTA or hedge fund that does this professionally. I would also suggest not to use all $800K this way. Too risky. I have a few clients that are doing this.
 
You must log in or register to reply here.
Back
Top