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agewen
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I respect your opinion. There is no one strategy that is right for every trader/investor. For me cc writing has worked the best in most market conditions. I control and max my results by selecting different strike prices, implied volatilities and betas depending on market conditions and chart technicals. This allows me to be successful in most market conditions as well as trade in sheltered accounts. Wishing you much success. Alan
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Larry, Sure. Option premium = Intrinsic value (amount the strike is in-the-money) + time value (amount over IV). Only TV is our profit. ATM and OTM strikes are ALL TV.Here's an example: BUY XYZ $32 Sell $30 (in-the-money or ITM) call @ $3 IV = $2 (not profit, but protection of profit) TV = $1 (our initial profit) Here is a link to an article I published with more detail: Covered Call Writing Premiums: Intrinsic Value + Time Value | The Blue Collar Investor Alan
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Larry, Great point. I would also advise investors to carefully watch the time value of the premium in these cases. If TV < dividend distribution, there is a chance of early exercise the day prior to the ex-dividend date. Alan
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Larry, I advise the use of naked option trading only to the sophisticated, experienced traders with higher risk tolerance. For some, this IS an appropriate strategy as long as the risks are understood and management techniques are mastered. For most retail investors, brokerages will require cash-secured, rather than naked puts to be used. I agree that covered call writing is a more bullish strategy than put selling but it still can be used in bearish environments by utilizing in-the-money strikes, low-beta equities and even exchange-traded funds. Alan
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Agreed, very similar risk-reward profiles but not precisely the same. I view covered call writing as a more bullish strategy especially when writing out-of-the money calls. In addition, naked put writing is much more risky unless cash-secured. Finally, cc writing can be used in self-directed IRA accounts where naked put selling cannot. In bearish market environments I may sell a c-s put and, if exercised, write a call on the newly acquired shares thereby using a combination of the 2 strategies. Alan (The Blue Collar Investor)
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Understanding all the nuances of this great strategy will allow the investor to use it in most market conditions and for all types of risk tolerances. risk and results can be controlled through strike price selection, evaluating the beta statistics of the underlying stocks and the implied volatility of the options. This may seem overwhelming at first but can easily be mastered in a short period of time. Selecting the appropriate stocks and options along with proper post-trade management can make this a lucrative and consistent cash flow strategy. It can also be used in self-directed IRA accounts. Nice going promoting this strategy! Alan