About the only advantage to the cash backed short put is that you might avoid the transaction cost of buying (and perhaps later selling) the stock. That can be worthwhile, especially if you are inclined to stop out of the position if it goes against you. It's easier to just buy back the put than to unwind a covered call. It's also easier to monitor the position since all the value is tied up in the one instrument instead of two.
Dan,
Let me argue with you, at least mildly, and then, second point, ask your take on some suggestions my broker's office made.
First to the slight argument. My aim with the put selling would be to replenish the Qcom contracts at 45, the price at which I sold them. If it fell to 40 and I were assigned the 45s, it would, at least so far as I can tell, be no different than if I waited for the price to drop to 45, then bought and watched the price drop further to 40. Except I have also pocketed at least one premium, perhaps more if it takes a while.
I have enough cash in the account to replenish the Qcom shares, even with cash tied up via the sold puts. So if I conclude I need to rebuy at 50, say it looks as if Qcom has established a new trading range in which 50 is now the low, I could do so. It would be more than a little uncomfortable for a while but it's doable.
Just off the top of your head, are there some very obvious no nos in that one.
As for the second question, after several back and forth e-mails with my broker today I learned they plan to implement an arrangement for cash secured selling of puts sometime before the end of the year. We'll see, though they are reasonably reliable. However, in the interim, he suggested I could sell shares short and then buy puts as an approximation of selling puts in the IRA rollover account. I'm just getting ready to read some on this and put pen to paper to see the math.
My first reaction was to question whether I can short shares in the IRA. The account software tells me I can. The box in which I buy/sell shares/options gives me a number of shares for any given stock which are shortable.
So, any advice? I shouldn't ask quite this baldly. I generally try to think things through before asking, the better to ask pointed question and the less likely to seem quite so dumb. But then, . . . .
John |
