Hi Bob,
There are certainly challenges and threats out there for any investment. WBA and CVS are fighting a multi front war. CVS has sought to diversify its portfolio with its purchase of Aetna. The overall concept of investing is to find instances of much greater potential reward than risk. WBA has weathered many storms in the past...
I really don't look at put selling as "trading" per se. If I was trading them, I'd be in and out of them a lot more often. I watch the decay of time value closely and use software to assist with that. I generally try to stay within one earnings cycle but may go out to 2 on an initial position.
If the position is OTM, I may let it expire but if the TV is low, I will look for roll opportunities. I do the roll with a spread order and look for a decent credit. Depending on circumstances, I may also roll up or down to a different strike.
If the position is ITM, I tend to watch it closer. I always roll if I can get a decent credit. Sometimes, you can roll down a strike (or even several) especially of you are willing to go longer term.
It is very rare that I'll write a put and not own some of the underlying. I often use underling securities with low yields but growing their dividend. I look at the yield from the put trades a LOT closer than the underlying yield. Some securities almost always trade a a premium to the market (i.e. JNJ MMM). I will also write puts on them but try to jump when they pull back (but still invariably trade at a premium albeit smaller at that point.)
Actually, I don't think that I put as much analysis into my positions. I have found that in a bear market, you will be assigned, however, you can usually roll out of minor downturns. If the security takes a fundamental hit that seems to be a result from poor management or discontinuous innovation, then you may be better off getting out completely. This is true no matter if you are long the stock or short the puts.
I used to argue with our Compliance folks that selling cash covered puts was less risky than buying the stock. However, there is greater risk of opportunity loss if you pick good stocks.... |
