Writing uncovered puts is a strategy that is used when we are bullish on a particular security or index. The subscriber receives premium for selling the put, but if the underlying falls below the strike price, then the option will be exercised, and the investor has to pay the exercise price to receive the underlying. This can also be a great way to purchase stocks at a discount. We generally roll our strikes or buyback our options but if a subscriber really likes the security they can let the option be assigned and own the security.
We expect our recommendations of short put options to expire worthless, or to be able to repurchase the option at a profit.
Sell to Open 1 GE November 25 Put for .27 cents.
Sell to Open 1 CSCO April 30 Put for .33 cents
Buy to Open 1 CSCO April 28 Put for .09 cents.
Net Credit .24 cents.
We typically stick with S & P 500 names and among those we generally stick with the less volatile names among the SPX. It sounds counter intuitive that we would focus on names with less volatility and less premium. We have found that sticking to blue chips generally works better for writing puts. It also keeps us in line with our motto "A Steady Dime is Better Than a Seldom Dollar." It`s tempting to write puts on highly volatile tech and biotech names when you see the large potential premiums. The problem is it only takes one failed drug, bad earnings call etc to wipe out several months of profits.
Many times we will sell put spreads rather than just an uncovered put. For example if we sell a put on General Electric we may only sell an uncovered put knowing our downside is limited. On the other hand let's say we did in fact sell a put on a biotech such as Gilead Science. We may decide to sell a put and buy a put lower to know what our max loss would be. Additionally, if one of our short put recommendations goes in the money and we still like the name we may decide to roll down and out. This means we buy back the front month option and roll to a lower strike later on the calendar.
Trades will vary depending on levels of volatility in the index or security. Some months when volatility is high we may put many trades on. Other months where volatility is compressed we may do as little as one trade. Our goal is to have a high probability of winners and not just make recommendations for the sake of recommending. We truly believe in our motto a steady dime is better than a seldom dollar.
If you choose a monthly subscription the rate is $119. A yearly subscription is $999 and saves you over 30%.