Tom, Herm,
Thanks for the questions and the great answers on the put selling. I recently have add this into my CC "toolbox" as a means to generate income without necessarily buying stocks.
I use the WINS approach, listen to some comments on stocks on this forum, and do my own research when picking stocks, but for me the process is about identical to CCing. For instance, last week Herm brought up KM as an option due to its low BB, RSI, OBV, and all the long term indicators pointed to it having bottomed out.
So, normally I would have bought about 2000 shares (after doing my own research, maybe asking some questions here about the stock as well) when it sat at the 11.50 or so price point, and waited for it to cross 12.50, and/or when short term RSI/BB/OBV got on the high end, then sold at or slightly ITM calls 1-2 months (sometimes 3) out. Instead, I chose to sell 20 JAN 12.50 puts, taking my 1.50 off the table. Now, I have that extra 3k in my account for the next month, and the 23k I would have had to pony to buy the stock, all earning interest until expiry. KM is a stock I wouldn't mind owning and CCing long term, so the criteria is the same for CCing. The bottom line is that at the point I would usually buy the stock, instead I sell the put. This generates a little more cushion for price movement, and allows me to maintain an interest earning cash balance in the mean time.
In Jan. I will either close the position out with some profit, or let the stock be put to me. At this point I will then try to CC the stock as normal. BUT, the good news is that if the stock is at 12.50 in JAN, I can just keep the 3k, write another round on the stock next month, or move on. Very similar to CCing, with a slightly different angle. I believe there is actually less risk this way, although it is very comparable to CCing risk.
Ryan |
