Gary,
Agree 100%. I have often wanted to sell puts in order to be forced to buy stock on sale, especially on what I consider a company with truly great long term prospects and hefty put premiums, a la MSFT. However, the real risk (and it's always out there, especially these days), is a 1929 style crash with no recovery for decades. Yet, even in that scenario, there's likely to be a sizeable rally before the long tern downtrend kicks in during which the losses could be mitigated.
In any event, as long as one reserves enough capital to meet the obligations of being put (50% ought to do it), I agree that selling puts can be a good money maker and a great stock buying strategy -- automatic buy on the dip. :o)
However, some people aren't set up for this psychologically or they pick real dog stocks and end up really stuck with them or large losses.
Broker conspiracy? Yep. You'd think the hefty margin requirements would cover their butts, so they really do seem to be "playing the house" to the options-gambling public. Actually, I believe being short stock or calls is actually of more risk to the brokerage than allowing naked put option writing. With the short position or naked calls, the upside goes to infinity (theoretically). Put writing is limited to the strike price of the put written. So go figure.
Though theory in this case is of little consequence in the real world, an overnight buyout announcement on a company you're short or call naked (a somewhat likely event) can be devastating -- the stock could gap up 50-100% with pratically no chance of retracing. With naked puts, the most likley event would be an earnings disappointment, but even this is relatively unlikely if fincancially strong, dominant companies are selected for put writing. The worse case on the put side, even with a good company, would be getting caught cooking the books or the CEO is arrested for murder or some such thing. But compared to buyout announcements on the call writing side, these events would be relatively rare when one is writing puts. |
