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No. of Recommendations: 2
TMFHamp wrote:
>---
I can understand selling calls against stocks that you already own, but initiating a stock position simply to sell calls against it doesn't make sense.

Selling a put has an identical risk/reward to a long stock/short call position and has fewer commission costs and less bid/ask slippage.
>---

Obviously I cannot disagree with the "fewer commission costs and less bid/ask slippage" issues, but lets look at a scenario together and perhaps someone can explain this more to me. Commissions are inclued:

CSE trading at 16.1, I can sell the Nov 15 put for .75 and it will yield me 69.45, I earn 1% on my reserves. This will yield me 71.32, for about 1.5 months or a annualized return on my 1500 of 38%.

If the stock goes up or sideways, then nothing changes. If it goes down I pay 14.39 a share. I am okay with that.

----Buy and write.
Buy the stock at 1610, write the Dec 17.5 at .9. So on an investment of 1614.95, I bank 84.85 for a yield of 5.26%, or 42% annualized. Additionally I might get a .60 dividend in Dec, but will leave that out for this calculation.

If the stock moves sideways no change.

If the stock goes up then I will make an additional profit of $125.

If the stock goes down I will be out the money that the stock decreased by.

----My conclusions
Writing OOM covered calls and selling OOM puts are very, very different. The former gives more profits when a stock increases, the later more downside protection.

IMHO it would seem best to sell OOM puts on stocks like BAC. They probably have some time to go before recovery, but they will increase in value.

Thoughts please.
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