Calls and Puts for Income Message Board

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Strategies & Market Trends : Calls and Puts for Income

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To: Delfino R Zavala who wrote (5632)	1/7/2013 6:11:43 AM
From: dealmakr	1 Recommendation Read Replies (2) of 5891

Hi Delfino, Selling puts when you have a volatility spike will allow you to take in more premium for the risk/reward strategy. By looking at a chart and doing some TA along with the FA you can see if the stock has support or is breaking up or down. There is a lot of difference in the type of stock where volatility expands or contracts. For example a lot of bio techs have expanded vol going into an FDA approval or test results and many times I have seen the price cut in half or more based upon the outcome of the event. Vol expansion on many stocks going into an earnings release especially for high beta names also increases premium, but you have to be concerned about the underlying fundamentals of the business as well as the health of the company and how things look going forward as earnings reports are based upon the past. Long term you have to be a stock picker and make your own analysis of each situation before entering a trade. When the trade is entered, you should also have an exit strategy in place to protect the risk part of the equation if the reward part doesn't come into play. What do you do then? Cover,roll out,roll down, take assignment with the possibility of writing covered calls. Many different possibilities to work your way out as long as your belief is that the stock will sometime recover. Picking the strike price to open a position along with the duration is also important. By checking the charts and looking at long term support resistance areas, you may have a glimpse of where the least risk strikes can be found, along with the ability of escaping if the trade doesn't work out. Open interest also comes into play as it may provide support/resistance at certain strikes. We all miss things when it comes to opening positions and having a plan in place and knowing where the next step lies will help keep things in check. Don't be afraid to second guess yourself and take a hard look at the pros and cons of why you are in the trade, then you can usually make the right call. Good Trading dealmakr

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