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.
Don, excellent points you make on the decision--making process of whether for calls, to roll up and out or have them assigned, or for puts, to roll down and out or take assignment.
In December 2021, I bought 100 of MSFT for $330.00 (I actually took assignment of a cash secured put at that strike price believing MSFT would move higher). Of course it didn’t, so since then, I’ve sold a few low-delta (far OTM) calls on MSFT to chip away at my cost basis. However, my latest trade, a 03/18/2022 $292.50 Call, moved into the money yesterday, and today, it has continued rising above that strike.
I did not want to take such a high loss on the stock ($330.00 - $292.50 = $37.50 per share), so I rolled up and out one week to a $297.50 strike. The trade cost nothing (bought back the call for $3.30 and sold the 03-25-2022 call for $3.30), however, this buys me some time.
I’ll have to watch MSFT carefully over the next few trading days. With all the uncertainty geopolitically and economically, it’s anyone’s guess whether in the next few days MSFT will break higher or come back down to support. I’d like to hold MSFT in my portfolio for the long-term, so my thinking is, if early next week MSFT moves higher above its last resistance level of about $303.00 on March 3rd, I’ll sell a long-term call, perhaps out to October 2022, at $340.00 for about $10.00 per contract. However, if it pulls back down, I’ll hold on until next Friday, then sell another far-OTM call.
In any case, you are on point about the types of variables a trader or investor must consider when deciding whether to buy back an option (call or put) or take assignment. A lot depends on the individual investor’s objectives relating to the underlying. It’s a fascinating, and typically profitable (presuming one doesn’t get too greedy) game of probability and statistics.
@Sallvlatore. Thanks for the great comment. You obviously know what you're doing and have a good plan. I bought PYPL calls back and sold April 14 $150 calls for only $0.16. That gives the stock time to bounce some more. StockRover.com's FVE is $102. Analysts' mean target price is $203 and the highest target is $350.
If it is called next month, I make money on the premiums I've collected and break even on the stock. I also my watching my DHR and TMO calls, which are at strikes below my costs. I'll probably roll them out, too. Meanwhile, my MSFT 3.25.22 $245 puts are looking good, and I may sell MSFT 4.14.22 $270 puts on the next dip.
Don, excellent points you make on the decision--making process of whether for calls, to roll up and out or have them assigned, or for puts, to roll down and out or take assignment.
In December 2021, I bought 100 of MSFT for $330.00 (I actually took assignment of a cash secured put at that strike price believing MSFT would move higher). Of course it didn’t, so since then, I’ve sold a few low-delta (far OTM) calls on MSFT to chip away at my cost basis. However, my latest trade, a 03/18/2022 $292.50 Call, moved into the money yesterday, and today, it has continued rising above that strike.
I did not want to take such a high loss on the stock ($330.00 - $292.50 = $37.50 per share), so I rolled up and out one week to a $297.50 strike. The trade cost nothing (bought back the call for $3.30 and sold the 03-25-2022 call for $3.30), however, this buys me some time.
I’ll have to watch MSFT carefully over the next few trading days. With all the uncertainty geopolitically and economically, it’s anyone’s guess whether in the next few days MSFT will break higher or come back down to support. I’d like to hold MSFT in my portfolio for the long-term, so my thinking is, if early next week MSFT moves higher above its last resistance level of about $303.00 on March 3rd, I’ll sell a long-term call, perhaps out to October 2022, at $340.00 for about $10.00 per contract. However, if it pulls back down, I’ll hold on until next Friday, then sell another far-OTM call.
In any case, you are on point about the types of variables a trader or investor must consider when deciding whether to buy back an option (call or put) or take assignment. A lot depends on the individual investor’s objectives relating to the underlying. It’s a fascinating, and typically profitable (presuming one doesn’t get too greedy) game of probability and statistics.
@Sallvlatore. Thanks for the great comment. You obviously know what you're doing and have a good plan. I bought PYPL calls back and sold April 14 $150 calls for only $0.16. That gives the stock time to bounce some more. StockRover.com's FVE is $102. Analysts' mean target price is $203 and the highest target is $350.
If it is called next month, I make money on the premiums I've collected and break even on the stock. I also my watching my DHR and TMO calls, which are at strikes below my costs. I'll probably roll them out, too. Meanwhile, my MSFT 3.25.22 $245 puts are looking good, and I may sell MSFT 4.14.22 $270 puts on the next dip.