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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 14189  
Subject: Re: Jim's in the money. Date: 1/31/2013 5:36 AM
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How far out are you writing these puts? What ARR are you targeting?

I have been doing fairly short term ones repeatedly, slightly OTM.
The price moves around a lot, so by sticking fairly short time frame
I don't end up with options way in or way out of the money.
When done repeatedly the rate of return is pretty good.

I don't target a particular rate, other than never doing puts without
a time-premium-only rate of return of at least 15%/year annualized.
The CHK ones have been so juicy that the rates have been much higher than that.
The stock has risen 4.9% in the 7 months I've been doing them and my IRR to date on these is 24%/year.
At the moment I have strikes 18,19 and 20 having just closed my 17s
yesterday as there wasn't much left to be made on them.
Expirations Feb-April.

Usually I like to go for 6-12 months out on most stocks. More margin of safety.
I find a good rule of thumb is the lowest strike and longest term that
still gives me at least my 15%/year time premium, but higher strikes
for the stocks that I really want to keep positions in longer term.

The main thing of course is choosing the underlying security.
I wouldn't do a put on CHK or anything else at any price unless I thought
the firm was going to stick around long term and worth more than current market price.
Frequently I'm wrong, but I have to at least believe that based on some evidence.

With premiums generally so low lately I have only a tiny number of
securities that I like so much I still consider puts worthwhile.
Next time the VIX is over 25 there will be better hunting.

Jim
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