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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 (835)	1/21/2000 12:56:00 PM
From: OX	Read Replies (1) \| Respond to of 1235

David, great topic. dave_s asked about recovery strategies earlier and we got hardly any response... I know everyone's interested in it. so let's everyone throw out theirs... there are lots of ways to do this, and I would like to learn some new ones... just in case ;-) ok, I've mentioned my main strategy is to roll out (or down or out AND down). btw, I've rarely had to do this thanks to the perpetual bull machine. David... you won't get assigned unless you are negative time value. being ITM won't do this to you. it has to be DITM. but the likelihood of DITM assignment is higher w/ Puts than Calls due to the way they're priced. It's also a good idea to ask your broker for their assignment procedures. most are random, but it's a good idea to get the details anyway. I usually don't like to write puts on anything less than .33 delta (i know put deltas are negative.. you get the idea). i also usually play month-to-month... this is just my style. I then base my strike written on the underlying supports and where I would mind buying the underlying... or where I would naturally buy it anyway (unless something fundamental seriously changes :-) Other things to balance are how much prem you're receiving to make it worth your while... I've posted this before to as roughly 1pt/wk to expiration. which is why I don't play low priced stocks. if you don't get enough prem to 'make it worth your while', then if you need to repair, you're going to be facing a much bigger problem. needless to say, the sooner you get to your strike, the worse your problem becomes. nothing is more important than the underlying. >>>I am planning to put a large part of my margin into writing puts for developing income JMHO... if you're just starting to do this, I would start out small until you get the 'feel' for it. paper trades, small positions then graduate to larger.

To: David Lind who wrote (835)	1/21/2000 2:18:00 PM
From: tyc:>	Read Replies (2) \| Respond to of 1235

< I haven't fully thought through repair in case of a major correction, and I'd like some ideas. What I am going to suggest will be unpopular, and people will say it is too risky. But keep in mind the situation you are talking about ( i.e that of a major correction) The best tactic is to cover the short put by shorting the common. You are using the short stock to hedge your short put. As soon as the correction is over, you lift the hedge. Morover the best time to place the hedge is EARLY in the correction. You could make more money on your hedge than you did on the short put. For several weeks ( so you see I don't profess to be a veteran) I have been working with a short straddle on a very volatile stock... short puts and short calls at the same strike. It soon became obvious the while the put is in the money (or while the stock displays bearishness) the correct hedge is a short. When the market sentiment changes, I will change my supporting "hedge" position to LONG. I would not dream of playing with the straddle itself.... the generous time premium is too valuable. Time will tell... but so far so good. Let me make one more (perhaps obvious) point. A short put has the same profit profile as a covered call; one is just as risky as the other. THEREFORE a short straddle is tantamount to a RATIO WRITE; it has a terrific profit profile especially if you are prepared to leave it in the background and play the stock short and long to guarantee and extend the profit profile.