edamo's post was a great response. I have tucked it away in my "reference gems" file.
Can you safely sell covered calls on ALL your core holdings if its at the right time (I imagine when the stock is making new highs and going up more than you could imagine)
Not quite right - if the stock is actually soaring, you are likely to break even or lose money selling calls. Selling covered calls works best when the expectation is that the stock will rise, but it actually does not. If the stock is actually rising, you may have your underlying called away, and unless that is your intent (i.e. sell the stock at a price you like and get the premium too), you may have to buy back at a premium - or buy back your calls before the stock gets called, which in that scenario will probably lose money.
sell puts on ALL your core holdings if you do it when the stock tanks
You don't sell the puts on stock you hold - it is on stock you would like to hold (or could tolerate holding) since if you lose the bet, you have to BUY the underlying. That's what edamo meant by reserving margin for swing. If I sell puts and the stock is put to me, I use any cash and then margin to take the underlying, but unless my real intent was to buy the stock, I would unload it as soon as the position was profitable to get that margin paid down. And depending on the market, maybe before then...
Selling puts when a stock tanks is bullish - you are claiming that you can pick the bottom and that it will stay above the strike less premium. If you lose that bet, you buy the stock at the strike. Having just played that game, I can say it's not the best way to relax.
I have learned a lot from edamo and some others about this part of the market over the last year. The advice edamo gives will help you sleep at night. Understand your risks, don't go outside of your comfort zone, and if the deal goes against you, execute your exit strategy immediately and go on to the next deal. |
