Musea
I think you are exactly right. In fact, your analysis is exactly why I started selling puts. I always wanted to buy a certain stock, such as Dell, but I always thought that I would wait for the right buying opportunity -- when the stock fell just a few more dollars per share. Of course, it seems that I could rarely get a stock at the price that I wanted. So, I thought, if I would like to buy Dell at 80, I would really like to buy it at 75. Then I realized that someone was willing to pay me for the option to buy Dell at 75. It almost seemed too good to be true.
You are right that a put seller would miss out on some of the long term gains-- and also a put seller would experience high taxes. The way to get around the loss of long term gains is to do exactly what you mentioned, roll the puts to a higher amount each month or two, depending on the circumstances. Also, the loss of gain percentage can be made up in the leverage offered by options. With a company like Dell, you can earn a 100% return selling puts every two months.
This strategy only works with companies that continue to grow. It would be foolish to apply this strategy to most companies, especially the internuts. |
