Hi Tim,
I learned a very interesting thing about theta (time decay) in as far as put sales go: The rate of decay is fastest when the premium is above $10. When it reaches the single digits, theta slows to a crawl. An aggressive short put strategy, then, is to write ITM by 15% or 20% to capture a large premium, with the intention of only riding the short put down to $8 or $9.
This is a different strategy from one that ed and PAL use, more agressive for sure, and must be watched, but it's good to have it in the arsenal.
Another thing I learned about put writing, and call writing as well, is that it's vastly more profitable to write options on the front month, as that's the month with the highest theta (again, time decay). This way, a short put can be written numerous times over a month, as can a covered call, for smaller but more numerous profits.
As far as worrying about writing covered calls and then having the stock spike past the strike price, I try to look at it as the cost of doing business. I have a lot of QCOM shares and have found that, if I write covered calls near resistance and buy to close near support (even though that might happen in a day's time like it did today) I can repeat the process two or three times a month. About one of every three times is unprofitable and the other two far exceed the loss. |
