Hello Dan,
It's great to find a fellow options trader, especially one who likes to sell premium. This is the primary strategy that we teach as well.
One concept that we have also had a lot of success with is writing naked options on various market sectors and indexes. One such example was the Banking and Finance sector. On April 2, we saw that the BKX sector was approaching its overhead resistance of the 200 period MA on the daily chart. When combined with the state of the Dow at that time AND the head and shoulders pattern the BKX was forming on the daily chart, we decided it was a low risk/high reward trade to sell naked calls on the BKX. So, we sold the May 900 calls on the BKX. By selling out of the money calls, this also decreased our risk because it gave the sector a lot of "wiggle room." After we initiated that play, the premium quickly started eroding as the BKX started dropping. If I recall correctly, we collected about $11 premium and bought the calls back for around $3 each, only two weeks later. This netted us a profit of about $8 per contract, with minimal risk. Although we could have just held them until expiration and let the premium drop to zero, we like to take the profits, which decreases overall risk.
By the way, one other benefit of doing naked options on sectors, rather than individual stocks, is that the risk of takeover or acquisition by another company is much less because you are dealing with an entire sector, not just one specific stock.
We often do plays like this in our room as we see the setups that make sense in the various sectors. Hope this helps.
Deron Wagner
General Partner
www.intradayinvestments.com |
