The strategy is simple. Pick good under valued dividend stocks. I pick stocks with active and liquid options that can be used to generate weekly and monthly income by selling covered calls and puts.
A reader emailed: "Looking at your PayPal paragraph, it seems that you initially sold 3/18 calls, not puts, correct? Just trying to piece together your strategy and I think you meant to write calls.
I am also curious about your strategy of selling calls below your purchase price. I am hesitant to do that so as not to experience an overall loss. Since the philosophy is to use strong companies for the options trades, holding on to the stock while it recovers (and also possibly get a dividend payment) is more bearable with a strong company that should recover before then seeking to place a covered call, better with a profit."
I replied: Great catch. I’ve corrected that in the article and in comments. Thanks.
On deep under water stocks, I frequently sell calls below my purchase price and at low deltas. I try to do the trades so they won’t be called. It usually works. When it doesn’t, as on PYPL and a couple of others last week, I buy the calls back at a small loss and roll the trade forward. It can take awhile to recover the small loss by selling calls and waiting for the security to recover, if it does. This is when it helps to trade only one contract on a security. Sometimes I forget and get over aggressive and pay. Thanks for being my editor. I hope you keep it up and that I can return the favor.
A reader emailed: "Looking at your PayPal paragraph, it seems that you initially sold 3/18 calls, not puts, correct? Just trying to piece together your strategy and I think you meant to write calls.
I am also curious about your strategy of selling calls below your purchase price. I am hesitant to do that so as not to experience an overall loss. Since the philosophy is to use strong companies for the options trades, holding on to the stock while it recovers (and also possibly get a dividend payment) is more bearable with a strong company that should recover before then seeking to place a covered call, better with a profit."
I replied: Great catch. I’ve corrected that in the article and in comments. Thanks.
On deep under water stocks, I frequently sell calls below my purchase price and at low deltas. I try to do the trades so they won’t be called. It usually works. When it doesn’t, as on PYPL and a couple of others last week, I buy the calls back at a small loss and roll the trade forward. It can take awhile to recover the small loss by selling calls and waiting for the security to recover, if it does. This is when it helps to trade only one contract on a security. Sometimes I forget and get over aggressive and pay. Thanks for being my editor. I hope you keep it up and that I can return the favor.
Don
Correction: I sold PYPL calls, not puts. Late night brain fog.