The seemingly fat premiums make it tempting to write 3-4 month expiry calls
I think it's a little more complicated than that, in that what makes sense in one portfolio may not in another. I embarked on this experimental year of writing calls based on a very fortuitous, but random event (a post by you mentioning .VLMAT in passing) purely out of curiosity. As such, I am working with a portfolio of 8,000 optionable shares of one thing or another, all bought without any regard to options. At any given time I find that at least 2/3 of them are unsuitable in any time frame. Since I am not willing to write calls against all of any one stock, this limits the amount of contracts further.
I did a summary of the year and have been involved in 39 completed transactions representing 71 contracts. This averages to 1.8 contracts per transaction. My average gain has been $423 per transaction, or $234 per contract. My average holding time is 24.7 calendar days. My success rate has been 100% (no buy backs at a loss, no stock call yet). To duplicate this with only front month calls would have required an average premium of $240-$250 with a strike high enough so that the option expired worthless. I have not found these premiums on OTM leading month calls for most of the stocks I own.
My objective in all this has now become finding out if I can replace my working income ($65k) by doing this. I plan on putting a new 50k to work in a separate account were I can choose stocks specifically for their optionability, try out other strategies, maximize percentages, not worry about getting called, in short, more aggressively pursue this avenue. (I may even read a book on the subject, although the posts here are probably good enough). I look at the last year as mostly cherry picking. I also tend to personalize my strategies, rather than getting too caught up in math theory.
I can see where a larger portfolio would allow selling contracts in multiples of 10, without regard to transaction costs, for smaller absolute premiums. When my 8,000 shares turn into 80,000 I will attempt this. There is no doubt that the percentages are usually better in front month options.
ARS |
