Mephisto,
I was talking about SELLING a put, not buying one. For example, with XYZ trading at $30, sell the September 30 put for $3. You collect $300 for selling one contract. Then, if the stock drops and the holder of the put exercises it, you must buy the stock at 30 (or buy back the put at a higher price). If the put is not exercised, you keep the $300 profit on the put. If excercised, your net cost on the stock is $27/share. These prices do not include commissions. This is what the pros on this thread are doing on a large scale. I'm more interested on doing it at a smaller scale. I am not comfortable with the enormous risks of large uncovered positions.
For a broker, I use Schwab Street Smart. This provides a 10% discount off the regular Schwab commission. You also get a limited number of real-time quotes.
The risks of selling uncovered options are high. I've heard that a lot of index put sellers were wiped out in '87. To be qualified to sell uncovered options, you have to demonstrate to your broker that you have the capital and experience. I do not yet have the experience, so I am not qualified.
I also fear expect that the market has some rough times ahead. When valuations are much lower, I will be more interested in selling puts. |
