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« 2014 Investment Preview | Main | Weighing the Week Ahead: More “Experts” Predicting a Market Top »

January 15, 2014



SCM -- I agree about the general characteristics of selling puts. The differences relate to what you can do in a retirement account, what investors will understand, and whether you want to own the stock.

Selling puts is a great strategy for a sophisticated investor who really wants to own the stock at the implied price.

A problem is that in the pre-1987 era people did this with too much size, following programs that portrayed it as "free money."

I do not have a current program for this strategy, but it is fine for some investors.

Good question, and thanks.



Hi Jeff,
Great method and a superb example. I've provided a link to it from my blog so my readership may benefit.



Covered calls and cash-secured puts are equivalent exposures, as you know. I think there's normally a little more premium in put-selling due to kurtosis (put buyers are willing to pay more for downside protection than call buyers speculating on upside). You don't capture dividends, of course, being short puts.

Wondering if you've considered running a similar yield program using puts, versus calls.

Thanks for the informative article. It's very educational for the reader.



I had no trade in mind.
Howewer, I just checked and the 1860 call of end February would have been quite good a few days ago. Implied volatility seems a bit low right now.

It was more of a general opinion. I just think the idea of selling near term calls is a brilliant. The search for stocks can be quite difficult for the ordinary investor and it seems to me, it is not a necessary condition to enter this type of trade.
As a top-down investor who has no idea about specific stocks, I don't wake to take risks I can not properly identify.


scorp -- I always consider a roll to the next month, sometimes at a different strike. It depends on the price and whether the stock fundamentals justify a new range.

In general, if a stock will be called away it means that I have gained nearly four percent in a few weeks. There is nothing wrong with that.

There are many stocks that fit the profile for this trade, so it is best not to fall in love with a single name. If you like a stock that much, it should just be a long-term holding with no calls involved.

This is a very good consideration -- both going in, and for later adjustment.



AJR -- The weeklies might be OK for some, but you need strong liquidity to do size. You also have to keep in mind the more frequent trading costs. It is a balance of time decay (which is really fast) and trading cost including both commissions and spread.

Good question. It might be right in some names.



jeanpy -- You might be able to play the full index, but I expect to get much better returns by focusing on my subset of stocks that meet certain requirements.

Maybe I'll take a look and revisit. Do you have a specific trade in mind for FEB expiration? Something that would match the XOM idea?

That would be a good test.

Interesting question.....



What do you do if the options are going to be assigned to the call buyer? Do you buy to close the call and then roll out to a higher price at a later date or do you let assignment occur?

Al Robertson


I have been using, with good results, the guidelines from your "Quest For Yield Program"; to write covered calls each month.

I'm curious as to why you shun the weeklies. Could you elaborate?



Hi Jeff,

thanks for the interesting post which is a good reminder of old post of yours (to the regula reader).

what do you think of this strategy for the S&P 500 ?
it would be a way to avoid specific stock risk while the dividend yield is close to 2% (not too bad).

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