Hi sm1th,
To be honest I started selling puts this same way.
Not chasing premium.
Every time I sell a put, I calculate the dividend yield if assigned and the premium divided by the net purchase price and then annualized it.
After while you begin to see what you can comfortably get away with.
It's the greed in wanting premium that gets a higher priced purchase.
Short of being in a full blown bear market, for me to get a stock assigned two events result in that happening:
1) I get lucky and the expiration is one of those 2 or 3 times a year when the expiration is preceded with a corrective wave down into expiration. I say lucky because that is what it is. I go out far in time to build premium, which if assigned builds dividend yield, and I have no clue whether the expiration is going to be up or down into the close.
2) My usual put sale results in expiration. If after several months in a row, the puts accumulate a sum of expired premium and I I'll do only 10 puts at the next higher strike price with the more assured expectation I'll get them assigned. The name of the game is to buy dividend paying stocks and get that dividend revenue stream coming for the rest of your life. I view the accumulated premium funds on a cash flow basis that I subtract from the strike price. It is not correct accounting as far as yield to dividend basis, or tax calculations , but I do give myself a raise for next year, which does compound over the longer view.
Bottom line it is slower investing, taking the money from the speculators. Over a life time it yields much fewer scars! LOL
So I'm giving it time and taking fewer losses.
There are no doubt many better and more sophisticated approaches than my simple approach.
It works for me and it takes the fear out of the market for me.
If I like either outcome before the trade, I take either result with a smile.
We all need to learn our risk tolerance!
Bob |
