No question it is better to write puts when stock is weak or declining since premiums improve (puts) when market anticipates more decline.
Remember however that the best play in Dell in the last 5 years has been to be long calls for their unlimited upside. Writing puts, while highly profitable on Dell, does have a limited upside. No matter how much it rises, you profit is always limited to the premium you write.
In the end, you must have a strong belief of your target stock. If you believe Dell will continue its stellar price action, then you are far better off with the long calls. If you believe it will begin to stall like Compaq, or if you are risk adverse, then naked puts offer modest, steady, limited income potential. Very little wrong with that.
Compaq is good, Dell is better
Gene Piccoli |
