Now what would you do?
write only one month out, or take it a bit further, say 2 months to get the extra premium and reduce transaction costs.
I'm not in the biz of giving advice, so pls don't take this as such, only an opinion.
I come from a trader's background, so imo you have to time the market.
Time in the market is for suckers & noobs.
You know the ole
"you bought it $85 so now it's cheap at $70 and should buy some more, it's obviously going to $100"
"It's really cheap at $60, buy some more as this is value investing like Buffett"
"It's a steal at $50, invest like Buffet and load up"
"Nobody could predict what happened and it's now <$40! load up!"
"What? you got a margin call and lost the lot and had max the LOC? as well...have a nice day Mr A"
"Hello Mr B there's a great opportunity to value invest in a great stock at $40"
"Mr B it's now $30 load up matey!"
"Wow it's awesome value at $20, this is where the big boys get in!"
"What? you got a margin call and lost the lot and had max the LOC? as well...have a nice day Mr B"
"Hello Mr C there's a great opportunity to value invest in a great stock at $20"
"Mr C it's now a bargain at $16 load up matey!"
"Hello Mr C just thought I'd let you know it's now $30! you did well Mr C"
"Yeah I know I'm a genius, but that's what we do for our customers. We are in biz just for them"
And that pretty much describes the whole investment commission industry.
Be it brokers stocks, cfds, commodities, currencies, managed funds, financial planners (misleading and deceptive title of course) RE institutes and REAs and now also BAs and I'm sure I've missed some.
would you write the put very close to the money position?
You seem to know the mechanics of it.
Me, I think like a trader, and that options give me a bit of leeway in my timing.
I don't use a "system". I have preferred parameters I like and work with and
look for opportunities. (the P.P. strategy lol)
I was pretty far away from the market and closed quite a few positions when happy with the returns.
My time frame was 1-2mths. Never more.
But I would not get bogged down with calendar mths, that sounds good at seminars though.
And it took a bit more than a "few minutes a mth", more like 1-3hrs a week.
My first view (and again please comment) would be to write the MAY $21 put.
Reason: slightly out of the money, two months out, so less transaction costs (cost of rolling), difference in the premium spread.
My total capital at risk would be based on roughly $21-0.58-0.33= $20.09
My two month income return = 2.7% (0.58/21) of capital at risk (actually higher because what is the probability of being excercised, i am not mathematically sophisticated to know this probability). This does not include transaction costs.
As a trader I like to minimise my probabilities of being called up to buy the stock.
I wanted to keep the writing income for nix. Never ended up exercised, that's why a bull market helps.
But if you wanted to own the stock and it went up to $25 then, then you may mentally beat yourself up for "missing out" which generally causes expenses (or losses).
For me I could'nt give 2 hoots if ZFX poked above outside my screen. (thou be fun to see!)
I took my cash and waited for and when the next opportunity would come.
Very few stocks would fit and they ended being ZFX & OXR most times, Lihir & BHP on a few occasions.
When they stopped coming, I was out of the market.
I posted a few times about buying RE when the market is good for buyers, not sellers. Which is why I did'nt even read this forum for a few years, and now back.
To further reduce risk, would you write positions against several stocks simultaneously.
I neva did that and I dont think it's reducing risk.
And there is plenty risk doing this.
Lots of risk.
I would only do it with a very small slice of my assets.