I typically don't rely on margin when writing puts, so virtually all of them are cash covered. I'm not adverse to margin and carried a reasonably large margin position (for me, about 40K) back in 2003. That ended up taking longer to resolve itself than I had anticipated going in. It all worked out okay but I try to think of any trade as a unique experience (not sure if I'm clear on what I mean by this), just like I try to think about using margin as a compartmentalized decision.
My underlying fear is that I will establish options positions beyond my own risk tolerance with the cavalier thought that I can always use margin, or I can always role it over, without clearly defining what that might mean. It seems way too easy to get caught up in the trading, stubborn (I know I'm right and in just a few more days the market will recognize that), whatever other rationalizations one might be prone to using, with those possibilities close at hand as escape hatches.
No doubt I limit myself by that attitude, but it seems safer to have to ponder long and hard before going there. My overriding goal is to not have to eat dog food, or go back to work.
I like the idea of establishing straddles as you describe them, selling covered calls and puts at support and resistance points. As I get more comfortable looking at simple charts it's fairly easy to draw a line in the general neighborhood of what has proved to be the price limits in the past. Not that me drawing a line on a chart means anything, but it does provide a context, and I look at 6 month or 12 month charts to do this.
I haven't done the straddle thing, typically selling a call as the price nears resistance, buying it back if it falls and then selling a put if it falls further toward support, a similar approach but not simultaneous. Without going back and doing any hard math (work) my sense is that I look for a decent premium when the stock gets with 20% of either point. Since this is a process and I'm still stumbling along in the dark, I'm inclined to sell only a couple of contracts at first and then a couple more if it continues down to the actual support area. I'm also trying to up the number of contracts (to 5) if the move is particularly extreme. Hard to quantify all this, kind of like art, I flatter myself that I know it when I see it.
ARS |
