bob craig...dell long or sell puts...
if you fully understand and are clear on what you wrote, then you have fully grasped the simplicity of the put selling strategy...
i will repeat the two rules, have the capacity in cash or margin to accept, and want to own the underlying..
the strategy as you describe is what i refer to as backing into the long position..try to sell the position which will give you the lowest cost basis..if you go long today, and the stock tanks, you are out cash and have a paper loss...if you sell a short term put you have cash in, and the possibilty that it may or not be put to you...
case in point...with the dell sell off mania, the premiums exploded in leaps...i sold 40 x jan 120 01 (zdemd) @ 5200/contract, net 207965..went long 1000 dell @ 82.5, holding cash for possible short term opportunity...common has stabilized, but zdemd bid 49-49-7/8 today...change in perception and volatilty with sideways common has given me +3 on premium(12k)...
say you want to go long...go long on half, write puts on other half, use cash in to reduce first half position purchase..can't lose
CASH IN ALWAYS REDUCES COST BASIS WHETEHER IT IS COVERED CALL OR PUT AGAINST CASH PREMIUM....
scenario one...it will be put to you, accept if you desire at a price that you know is lower than today...or roll out to the next expiration(same strike), and have more cash in
scenario two...stock runs up, your premium erodes rapidly,perhaps you believe you lost the run up opportunity of owning the common...so close the contract, take the profit, sell a higher or longer strike and more cash in..
worst case scenario you always take cash in...enough cash in and you buy the underlying common for naught..this is what makes leaps interesting |
