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Strategies & Market Trends : Options
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To: Bridge Player who wrote (7756)5/9/2000 3:33:00 AM
From: Duncan J Horn  Read Replies (2) of 8096
 
BP

I'm trying to fathom the difference between selling puts and selling calls.

GBLX closed today at approx. 34.00 and with your scenario I would buy the stock and sell June 35s for 3.50 for a net cost of 30.50. Another approach would be to sell a June 35 put for 3.50 and if put my cost would be 31.50.

Forgetting the IRA tax advantage (I don't believe you can sell puts in an IRA?)...

Your return on the put, if the stock appreciates and the put expires worthless, is roughly 30%? of the total dollars invested, or you have purchased the stock for 31.50 and may then sell calls to repair and move on to the next put opportunity.

The difference seems to be that with your approach the goal is to buy and hold the stock, committing those funds to that one investment for a LTB&H. With the put sale one is willing to accept the stock but is more interested in the % return and willing, as edamo often points out, to give up the the immediate opportunity of stock appreciation in favor of a steady flow of investment income.

Pure annualized return appears to favor put selling and that it seems to me that it would be better use this to provide a consistent day in and day out cash flow that you could then use to purchase stocks that you would like to buy and hold.

This is the conclusion that I am forming (with the proviso that we are not in an extended bear market) and would appreciate any and all comments on which approach others prefer as well as a critique of this logic.

TIA
Duncan
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