Does anyone know how ETrade would handle this? I know they prohibit naked call writing.
I would think writing puts equivalent to your selected buy-write would produce the same level of income and risk. But where one needs to close out the position, buying back a short put avoids the "hanging" naked call from selling out the long stock. The delta problem remains, of course, as the common falls, so does grow the delta of a short put towards 1.0.
Personally, I have been doing short puts within my capacity to make stock purchases under the then prevailing market price. I have been doing this only on issues I feel comfortable with long-term, which for me could be forever. If I get put, so be it. If not, also fine. I also choose issues in different industries so as to diversify in-the-money risk, and I will take such positions when I deem them having a good risk/reward ratio.
As a recent example of a more risky tech play, for me, I went and shorted SUNW jan 02 15 puts when the stock came down hard to near 16. Right after such moves I have found IV to be high enough to warrant a portion of my CC/naked-puts portfolio. In this case I received 17.67% of the 15 strike as premium for an 8-month put, which is about 23% annualized. I make maximum income if SUNW stays above 15, and downside break-even is $12.35, a decline of 24% from where I put on the position. I am not that worried about buying SUNW at $12.35.
Meantime, the premiums and the cash collateral earn market rates.
This is just something I have done and am doing. Not to be considered advise of any kind, just my opinion. |
