Was it that convoluted? <Now where did I put my parentheses?> ;) I meant to say, now that some smart put holder foisted them overpriced QQQ's on me at JUN expiry, I had to worm my way out of a small loss by selling JUL calls on a pop.
I certainly wouldn't characterize put selling as a simple and easy path to uh, riches. I do say that for those who would initiate a specific buy-write, that selling a secured put is the same position in terms of risk and reward.
As far as the buy-write/put selling strategy goes, one must be prepared, even happy, to take assignment. In the case of the QQQ's that were put to me, I was well able to buy them. Having already collected the put premium, I was happy to collect the call premium on a quick pop to the upside. Each time I do this I lower my cost basis on the shares, which are part of a dollar-cost avg plan. Your mileage will vary.
In the case of MRK, I am happy to own the shares long term, and at a net purchase price that suits me fine. Frankly, I can't understand the need to dump shares for what is nearly certain to be a short-term problem. I expect MRK to be here in ten years selling all sorts of new and interesting drugs to new and interesting people. :) In fact, today may be an excellent day to snarf some up or initiate buy-write, as some portion of risk has been squeezed out of the shares now.
Seriously though, unless you need to actually pay for something immediately, like a daughter's wedding or the like, where is the urgency to sell? It's not like they said vioxx causes hot-dog finger or something. And then you take the sector slams: GPS stores has a problem, so COST gets hammered. Yes, both are retail consumer, but they are totally different markets! A perfectly good case for the ineffeciency of the capital markets.
Ah well, I'm trying to call em as I see em. I keep detailed track of the put selling I do, and I think of it as an insurance business. I like to sell high-premium polices when the risk has been substantially reduced, which is exactly what happens after a stock falls hard (disaster has already played out and the insurance premiums inflate). |
