When the great panic was going on, they marched Jim Rogers out and asked him what he was investing in. He said he had no idea how low the S&P 500 would go but he was selling puts on it and didn't mind the assignments. So, I assumed what he meant was that they were all covered and he had a win/win situation: not get assigned and get the extraordinary pct of capital at risk payouts or get assigned and have a tremendous downside cost average, assuming he was staggering the put sales as the market continued to descend.
I did the same thing. Starting at 90, I staggered 3 cash covered sells at-the-money at 90, 80, 75 with expiration 1 yr out. No assignments occurred. I think the VIX was 80 when I started. Premiums were simply outrageous.
I think if I had to do it over, I would have chosen 6 month expirations and would have collected the premium and increased chance of partial to full assignment. The staggering has the effect of averaging your cost average far below anything you could ever do with outright purchases. Also, at the 6 mo level, you may have the situation where the market deadcats, you keep the initial rounds of premiums and then you get another opportunity to outright buy or sell puts again at the same prices.
It was insane. It was either Micron or AMD at $2 and the 1 yr out ATM puts were selling for $1. The thing is this. You don't know how long prices will linger at lows or what the bounce and then settle back prices will be. All you can effectively manage is your overall cost average which is acceptable to you as a longer term hold.
This next time, my guess is a first big low in the S&P 1300-1400 area and maybe a scarier one in the 1100-1300 zone 6 months after that first major bounce. I wait for 2 things: super high VIX (40+) then start looking at the ATM premiums to see what kind of staggered selling cost average you can get from full assignment (any stock, not just S&P). Then, you need something that is hard to explain but you will experience it in real-time: you need the bottom callers to be so wrong that they don't even want to guess anymore because they've embarrassed themselves enough saying buy, buy, buy all the way down. But hey, they'll probably march Jim Rogers out and that's when you know it's time to start your operations!
I think the super rich, savvy investors sell puts at bottoms for rude premiums and will gladly take the lowered cost average on assignment. Outright buys are best made when stability regains a foothold (outsized premiums vanish).
I did the same thing. Starting at 90, I staggered 3 cash covered sells at-the-money at 90, 80, 75 with expiration 1 yr out. No assignments occurred. I think the VIX was 80 when I started. Premiums were simply outrageous.
I think if I had to do it over, I would have chosen 6 month expirations and would have collected the premium and increased chance of partial to full assignment. The staggering has the effect of averaging your cost average far below anything you could ever do with outright purchases. Also, at the 6 mo level, you may have the situation where the market deadcats, you keep the initial rounds of premiums and then you get another opportunity to outright buy or sell puts again at the same prices.
It was insane. It was either Micron or AMD at $2 and the 1 yr out ATM puts were selling for $1. The thing is this. You don't know how long prices will linger at lows or what the bounce and then settle back prices will be. All you can effectively manage is your overall cost average which is acceptable to you as a longer term hold.
This next time, my guess is a first big low in the S&P 1300-1400 area and maybe a scarier one in the 1100-1300 zone 6 months after that first major bounce. I wait for 2 things: super high VIX (40+) then start looking at the ATM premiums to see what kind of staggered selling cost average you can get from full assignment (any stock, not just S&P). Then, you need something that is hard to explain but you will experience it in real-time: you need the bottom callers to be so wrong that they don't even want to guess anymore because they've embarrassed themselves enough saying buy, buy, buy all the way down. But hey, they'll probably march Jim Rogers out and that's when you know it's time to start your operations!
I think the super rich, savvy investors sell puts at bottoms for rude premiums and will gladly take the lowered cost average on assignment. Outright buys are best made when stability regains a foothold (outsized premiums vanish).
