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I am retired and would like income with safety.
I am thinking of selling cash secured leap puts(in the money or out of the money) for income, on high div blue chip stocks like AT&T.
opinions appreciated
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wan123: I am retired and would like income with safety.
I am thinking of selling cash secured leap puts(in the money or out of the money) for income, on high div blue chip stocks like AT&T.
opinions appreciated


I am retired as well (79 years old at this writing, so well into retirement years, living on income from my IRA plus a nice supplement from SS. No pension on the side...only the RMD from the IRA)

I do a lot of options trades, and very few of them are short Puts such as you're describing. What you're suggesting is fine, and I may be more risk tolerant, but I find a better return can be achieved from the strategies that involve debit transactions at the start.

If you're going to cash secure your Puts, it's really not conceptually different from investing in, say, a Bull Call Spread that will return over 50% per year (as per the AAPL BCS recommended yesterday). A BCS is also "set and forget" which fits nicely with retirement years. Your cash is tied up either way.

At present, I have 15 positions. Six are Bull Call Spreads. Four are Diagonals. Two Covered Calls. One LEAPS Call. Only two short Puts. In effect, they're all "cash secured." But the return on capital at risk (which it is regardless of which strategy) from most of those others will be (based on past experience, which of course is no guarantee of future) will be better from those where I started with a debit position.

mathetes
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T (which bought Directv), would not be my first choice if safety is your primary concern.
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I am retired and would like income with safety.

You won't get that by dealing in options. The market is not in the habit of delivering risk-free profit. If you think you have found such a strategy, you are wrong.
"The lure of easy money has a very strong appeal."

Money you get by selling the upside of a stock is not "income". It is money you get for selling the upside.

A short put is synthetically equal to a covered call. Both have an asymmetric risk graph with limited profit potential and all of the downside risk (less the premium received).

opinions appreciated

When considering using a strategy, the risks are much more important than the rewards. So always do a search on "problems with {strategy}".

Try googling "problems with covered calls". Cash secured put has the same P&L as covered call, but there is much less literature since most people seem to prefer CC to CS-put.
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To generate income I have been using credit spreads (usually Bull Put spreads but also Iron Condors or Bear Call spreads) on SPX. Typically about 1 month until expiration with $10.00 strike spreads and a minimum of $0.80 credit to open. Can often Buy to close the position after 3 weeks for $0.05 debit.

For example on 2/22, opened a position of Mar19 3625/3615 Bull put spread for $1.00 credit. Potential for a 1 month rate of return of approx 11%.

On 2/23, opened a Mar19 3545/3535 Bull put spread position for $1.00 credit.

Using an index like SPX reduces the potential negative impact of specific stock risk.

Any thoughts on this strategy for generating income?

Will take a closer look at the Bull Call debit spread mentioned above.
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Fixed income provides very limited returns, but they are getting better.

Still, I want a bit better that fixed income provides and use B/W on dividend paying stocks to achieve this.

My preference is to use dividend paying stocks that I can purchase at/below their 200 DMA and sell JOTM CC's out 1 month or so. Hope to collect dividends with some upside and will roll out/up to capture dividend and maintain upside bias.

Total limit is 12% of total portfolio (B/W 8.5%, Naked PUTs 1.1% ,fixed income securities 2.1%).
Position sizes limited to 1% of total portfolio. Most positions are much smaller than 1%
Have multiple small positions in the same stock (total < 1%) with weekly expirations.
Will do this with stocks that I also hold for long term.
Goal is 12% income from options and dividend with some upside as the bonus.

Been doing this for almost a year averaging 20% annualized return. Beats fixed income by a lot.

I love free commissions!!! Free commissions limit the transaction friction to allow this type of strategy to work. My returns would be significantly lower if I was paying $7 per trade.

John
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