Well, cash covered at least...So I sold some on a stock that is trading below book value with a strike far enough below that I do not think it is likely to trigger. If it is not exercised, it will give me about 6% on the cash that I had tied up over about 7 weeks. Probably a bit over 40% annualized. We will see how it goes. It is a pretty small position since it is an initial experiment.Anyone else have any experience with this sort of an approach?
Not exactly sure I understand your question.If you mean selling puts just for the income, then yes, I would say that is pretty common, even without cash coverageIf you meant specifically singling out stocks below book value, then I am not sure about that. Is your thesis that choosing a stock below book value indicates that it is less likely to fall more? I would be worried that a put with that high of a return while still being meaningfully out of the money would indicate that "the market" thinks there is definitely a risk that it would fall, or else your premium would be lower
The premium is certainly going to reflect the implied volatility. The less risky the market views it, the lower the associated premium. But, even with thinner premiums I think that you can capture some decent returns by wash, rinse, repeat.So I look for stocks that already had a recent downturn that has bumped up the volatility somewhat, but that I do not think will disappear in the next few weeks.no guarantees, of course...
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