PUT SALES re: ["I believe I am correct to point out that you
cannot sell a naked put in an IRA. Do you know otherwise?"]
Can you sell puts in an IRA?
Put sales shouldn't be restricted within an IRA account,
but policies vary broker by broker. Check around.
Should you?
That depends...
This is where Suze Orman would trot out a ticker tape parade
of Money Magazine-esque boiler plate, with fear of God
warnings about it being your "RETIREMENT account!?!?"
Along with admonitions to dollar cost average, and buy and
hold for the long run... strategies that unfortunately just
cost most Americans half of their retirement nest eggs.
Are put sales and option strategies within an IRA for everyone?
Widows and orphans - no.
Sophisticated traders well versed in options - yes.
Those in the middle - maybe, maybe not.
If you have to ask - probably not.
If in doubt - don't.
You should have different risk tolerances in your trading
account than you do within your IRA/Retirement account.
But, put sales are NOT high risk trades. There is no reason
to be afraid of put sales.
Remember the definition of FEAR...
False
Evidence
Appearing
Real
Get a couple of good books on options.
Read and study the basics until you are comfortable with
the fundamentals of options.
Paper trade until you develop confidence.
And then start small.
Selling puts is a straight forward strategy with defined risk.
I'd also say... that for experienced traders, it's perhaps
the single most under utilized trading strategy.
In an environment where the fundamentals of the underlying
commodity are strong, but where there is high volatility
and whipsaw trading within a fairly defined trading range,
I can think of no better risk:reward trade on the pullbacks,
and especially on failed rallies.
To use a golf analogy...
Drive for show and putt for dough.
Think of put sales as your putter.
Not as flashy as that Maruman Majesty Prestigio driver,
but just as valuable.
Take AEM for example...
Here's a 6 month chart for Agnico Eagle.
AEM has traded within a fairly defined trading range.
But within that range, you will notice that there have
also been 3, or 4 "failed rallies" where AEM rolled over
without reaching the top of it's trading range.
When these smackdowns happen, you don't know if gold
is going to hold, or if AEM is going to hold it's
trading range bottom.
Selling deep out of the money puts on those failed rallies,
buys you both more time, and more downside, and pays you
rather large premiums as well.
If you buy the common and the bottom doesn't hold, you end
up stopping out for a 5, or 10% loss... and usually you end
up chasing a higher bounce...often only to get whipsawed again.
Selling puts is the anti-whipsaw trade.
1. You get paid up front.
2. You get downside protection.
3. You get more time for your trade to be right.
And if you're right and the stock ultimately rebounds, you'll
usually have 2-3 X the return of the underlying shares.
Volatility increase option costs.
Calls often get prohibitively expensive during high volatility.
Use that volatility and instead of paying excessive premium to
buy leverage to calls, get paid excessive premium to take the
leverage of put sales.
You can use volatility, or you can let volatility use you.
SOTB
PS: The US Dollar caught a left hook upside the head
today... legs getting wobbly. But I still took a little
off here, and added some puts for insurance (paid for
by cashing in some put sales).
The HUI has broken out of it's horizontal range with a series
of higher lows and higher highs... but, I don't think the
smackdown crew has left the building.
I'll try to get some HUI charts up after dinner tonight. |
