Selling ATM Options - Viable for long term strategy?

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badlucktrades

Let's assume you have a large enough portfolio, that you could sell 10-15 cash secured puts of an underlying that is around $40-50, where this would only have a 5-10% up to 20% effect on your total portfolio value.

If you're generally a long biased investor, at least for the next 5 years or so, and believe a stock like TD or some relatively safe blue chip, is a good buy during this time period.

Would you consider selling ATM cash secured puts, at predetermined price points?

i.e TD, current price is at $38. I've marked down about 6 possible entries over the next year, to what I believe is the lowest it can drop - that being, $10 per share, before rebounding.

You would reassess the situation/fundamentals of the stock after the third contract though to determine whether you'd continue with this trade.
 
If you are an investor, who wants to buy stock at those predetermined levels you speak of but wants to reduce cost basis by selling the ATM PUTs – this is a professionally used strategy, and offers some advantages over just buying the stock outright at those same levels.

If you sell those ATM PUTs during times of high IV, which would correspond with a down move (so hitting, passing or getting close to your level) you will get higher credits.

So for example, if the stock is trading with low IV but close to one of your levels, considering skipping it for another level down, possibly catching a down move that brings higher IV with it.

These types of trades, around a portfolio will only help you in the long run. Furthermore, consider selling CALLs (covered calls) against your stock inventory to even further reduce basis.
 
risknav said:
If you are an investor, who wants to buy stock at those predetermined levels you speak of but wants to reduce cost basis by selling the ATM PUTs – this is a professionally used strategy, and offers some advantages over just buying the stock outright at those same levels.

If you sell those ATM PUTs during times of high IV, which would correspond with a down move (so hitting, passing or getting close to your level) you will get higher credits.

So for example, if the stock is trading with low IV but close to one of your levels, considering skipping it for another level down, possibly catching a down move that brings higher IV with it.

These types of trades, around a portfolio will only help you in the long run. Furthermore, consider selling CALLs (covered calls) against your stock inventory to even further reduce basis.
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Selling puts to buy stock is the stupidest idea around, it's best to buy the stock outright.

With Naked Puts you lose out on any potential stock gains, but carry the risk of the stock going down. Long the stock also carries the risk of the stock going down, BUT you benefit if the stock rises - which is the whole idea of buying stock in the first place.





:)
 
OTM-Options said:
Selling puts to buy stock is the stupidest idea around, it's best to buy the stock outright.

With Naked Puts you lose out on any potential stock gains, but carry the risk of the stock going down. Long the stock also carries the risk of the stock going down, BUT you benefit if the stock rises - which is the whole idea of buying stock in the first place.





:)
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With naked puts you collect the premium if the stock moves up...so you do profit off it.
 
OTM-Options said:
It's doubtful the premium collected would match the amount the stock appreciates in value.

:)
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I have to respectfully disagree with both your statements.

1. Selling ATM PUTs to buy stock is not the stupidest idea around, I accept it’s open to opinion, so I respect your opinion however the original poster is correct in that it is a viable strategy.

2. How is it doubtful the premium collected from selling ATM PUTs will not match the stocks appreciated value? You would first have to assume the stock goes up (50/50?) and if it does, goes beyond what the market priced at the time of the ATM trade (statistically speaking slightly less than 50/50 on top of the existing straight up 50/50).

You might be thinking more in line of OTM options, since your username matches that theory. :)
 
Buy-writes always underperform in a bull market, but dramatically outperform in bear markets (top decile vol and added premium). The SPX dropped 18% in 2011 from May to Nov, but the BXM index only dropped 12%.

You can convert a passive index holding to a short put or even a synthetic call spread with options. It's better to use 'em than not.
 
destriero said:
Buy-writes always underperform in a bull market, but dramatically outperform in bear markets
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False ............. The market is not linear, time of the entry is key. You could have bullish option positions and still lose money in a bull market, same thing with bearish option positions in a bear market. That's the way options are.




:)
 
destriero said:
Buy-writes always underperform in a bull market, but dramatically outperform in bear markets (top decile vol and added premium). The SPX dropped 18% in 2011 from May to Nov, but the BXM index only dropped 12%.

You can convert a passive index holding to a short put or even a synthetic call spread with options. It's better to use 'em than not.
More...

can you explain what a passive index holding is? thanks.
 
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