rkal "skimming premiums"
two distinct schools of thought on the function and purpose of options. the "retail" mindset is the traditional buyer, who uses the leverage of the option to attempt potential gains. the "other" mindset, be it institutional or more sophisticated trader is the "seller", who uses the option as an income and cash flow generator.
in the best of times the buyer appears as genius, but over a broad period of economic cycles the seller yields consistent gains.
your wanting to "skim", is akin to using your portfolio as inventory, and instead of letting it just move by the vagaries of the market, you through a covered call establish a monthly "dividend" flow. worst case, you have the stock called, but you never lose in a tangible sense. many may argue "loss of opportunity" but you can't spend opportunity.
conversely the put seller uses margin capacity, be it cash or equity collateral to achieve the same result. downside if any, is assignment of that which you don't mind owning at a lower then current market price.
hard concept to believe,especially by those who have had less then ten years market experience, but the sell side on balance is the most profitable side. |
