amein...naked brokers, and what they "put" us through..
i use a full service broker, most give a bit more latitude, but can require a minimum 100k balance, money is available immediately,since mid feb i have received 465k in premiums on leap puts and plowed the money back into long positions on dell and aol. if you sell the put at a point when the market assigns an unusual volatility factor to it, you can most times be in the money even if the stock continues to fall...the premium reduces as volatility normalizes...it appears pal has done this. i use it as a long term investment strategy...look at pal's strategy, if he guesses correctly and completes the third leg,then he with no money at risk can generate maybe 100k a year in cmgi premiums just by working the swings...i agree with covered call writing, prefer not to upset the underlying, but if you have a extremely volatile issue and you know the patterns than you can feel a bit safe in reaching far out on a strike and scalp some premiums...
rules that you should never,ever,violate
*always have the capacity in cash or margin to accept the put if assigned
*only sell puts in issues that you own or desire to own
in essence the put sale is a way to back into an issue at a price below what you would pay at the present moment, or use to give a pseudo reduction in the cost basis of your common, and if very bullish to use the premium to go long....philosphy of that strategy is that if i believe an issue has sold off for no fundamental reason,the moment that a put looks attractive, the underlying must also look like a buying opportunity.
the strategy is much maligned, it is a simple concept to grasp, once you clear your head of "opportunity losses"....a tangible better than what may come your way. these are the present 01 leaps i have sold
dell 01 60 premium 26 cost basis if put 34
dell 01 55 premium 23 cost basis if put 32
aol 01 200 premium 85 cost basis if put 115
emc 01 150 premium 52 cost basis if put 98
i am long all of the above issues...i prefer to sacrifice optimum percent return that can be had by selling monthly positions, and reach out to the farthest expiration and out of the money strike and take large dollar amounts in....less maintenance and attention for me...
i'm bullish on the long positions, and if i am a believer in the underlying and the market, the 01 prices as above if put are all below what i would pay for today's long! anything above those prices and i win...conservative, and long term portfolio builder, no smoke and mirrors...just common sense and simple arithmetic...good luck, ed.
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