I believe that the put you want to buy, if you are buying it at the time you are selling the call, as you said, ATM or slightly ITM at a strike near the upper BB, the put would be at a strike near the lower BB, so it would usually be cheap, 10-20% of the call's price.
Now, I'm new too so I'm trying to get a feel for whether the strategy works better with the put or without it (and looking for more thoughts from the group too). Cause if you watch the stock fairly closely, then you can roll down, or make adjustments without having that put. If you buy the put, it's there for insurance in case the stock dives, or if the stock just rolls between the BBs and bounces back up off the lower BB, you can sell your put for a profit, buy your call back for a profit, wait for the stock to go back up to the upper BB, then you can roll your position to one month further out once it hits the upper BB again.
I have seen tech stocks where the put is too expensive as you said. Some of these stocks may be a little dangerous for this strategy since they have so far to fall as we have seen recently. And without the insurance put you may take a loss that will take a while to repair. You might consider one strike further down for the put where it is cheaper, viewing it strictly as insurance against catastrophic loss.
I think the near month is almost always a better percentage shot because the time value is eroding more quickly. If a 2 or 3 month out call goes down enough to make the same percentage as the near month would have made with the same move, then this stock may be a little too volatile. I've seen some stocks with 2 weeks or so left till expiration of the near month option with the ATM call still at about 10%, but it will erode pretty quickly from this point on, which is good for you. Considering that call will be 0 after expiration (assuming its ATM or OTM) and then you can sell the next month out, this would be better than selling the 2 month to begin with, by nearly a factor of 2.
-George |
