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Strategies & Market Trends : Selling Puts: Have Cash Will Travel -- Ignore unavailable to you. Want to Upgrade?

To: David Lind who wrote (761)	12/22/1999 10:41:00 PM
From: KFE	Respond to of 1235

David, I used to do a lot of OTM put selling and would always have a mental stop loss at the point where the option became ITM. This would usually limit my loss to an amount equal to the premium received (1 to 1 risk/reward). On the occasions when I did ATM or slightly OTM or ITM I would use my expiration break even point as my mental stop loss. For a 50 strike that I received $5 premium, my stop point would be when the underlying hit 45. With this strategy I was able to avoid any catastrophic loss and lived to trade another day. This strategy worked fine for me but you will have to determine what works best for you. Whatever strategy you use it is critical that you strictly follow it. No hoping allowed, move on to the next trade. Regards, Ken

To: David Lind who wrote (761)	12/22/1999 11:11:00 PM
From: Tom K.	Respond to of 1235

".... when to cut losses prior to expiration...." David, the best way to minimize losses in PUT selling is Rule #1: chose the correct underlying. Once you have done that, if the issue drops, either take it because it's the good stock you researched, of roll it out and wait for it to come back as it will because it is the good stock you researched. If you deal with low quality issues, be prepared to toss in bed. One more point, if it drops prior to expiration, it will have time value remaining in the premium. If you buy it back too early, you'll be paying this additional penalty. If you can hold right up to expiration and roll out, you'll minimize this penalty. Rule #2 also helps..... give yourself plenty of cushion. Good luck. Tom

To: David Lind who wrote (761)	12/22/1999 11:28:00 PM
From: TheHahnz	Read Replies (1) \| Respond to of 1235

setting stops for put writing is a great question. I follow a somewhat different approach for a percentage of my trading portfolio. I follow a large list of optionable <$15 stocks. Diversify the risk by never letting one position exceed 10%(better yet 5%) of the portfolio. Go out 4-6mths and lean towards otm positions. Then I forget about the trade until expiration, when it expires worthless, or gets put to me and covered calls kick in. many variations in between. TH