Pick good undervalued dividend stocks with active and liquid stock options that can be used to generate weekly and monthly income by selling covered calls and puts options.
The beauty of selling out of the money puts is that a puts trade is one trade. Sell the puts. And, if needed later, buy them back. The risk is that you get a sudden 1,000-point drop in the Dow like we did Friday. That puts you closer to an exercise.
Then you have to decide whether to buy the puts back. I am short some puts that will expire this Friday and later in the month.
Last week I bought AMAT, BAC, CLF, DFS, MGM, MRNA, QCOM and SU and sold ITM calls that expire on 9.2, 9.16 for annual returns on risk ranging from about 26% to as high as 109%. These are higher ARoR than I get from selling puts. So far, they're still trading well above my net debits (stock cost-premium-potential dividend collections before the options expire.
Hey Don: Thanks for the detailed response--to clarify, I’m curious why you would buy stock then sell the itm call when you can do the equivalent by just selling an otm put.
Today he posted a trade on GS and I quickly did it. I've done his last 13 trades and all but one, I think, is still working as planned. DFS still might be called. If not I'll roll the calls forward. Again, selling ITM puts is a good hedge and produces good income on a diversified portfolio of covered calls trade.
At the same time I'm short puts on other stocks and ETFs and I have several covered calls positions and some that I will roll forward when and if the prices snap back.
It's all about diversifying risks in terms of the number of trades, the timing of trades and the kinds of income trades I do. At the end of the month, I've made good dividend and premium income even if my stocks haven't done so well. I'd be down more than twice as much as I am on the year if I wasn't selling puts and calls.
DIA (DJIA30) is down about 640 points, or 1.9%. It was down 2%. QQQ is down 2.6% and IWM is down about 2.16% while SPY is down about 2.9%. I sold GIS (General Mills) 9.16.22 $75 strike puts for $0.67 and $72.50 puts for $.32. On the $72.50 strike, the RoR is about .413%%, or ARoR is about 6%. On the $75 strike, RoR is about .864%, ARoR about 12.6%. Margins of safety are 6.5% and 3.3% respectively.
With market down 451 points on the Dow, I'm waiting a few hours or days before I buy anything else and sell calls on them. This morning I am trying to sell GIS $72.5 and/or $75 strike puts after having GIS called ($75 strike) at a profit Friday. GIS is $77.75. GIS is General Mills.
Dow is down $480.20. CLF is down 3.18% to $17.27 where I bought it. Sold CLF 9.2.22 (11 days) $16 strike (delta .78) calls for $1.54. Estimated RoR 1.56%, or 51.88% ARoR if called on 9.2.22. Because of market conditions, I did a smaller trade than I was planning on Friday. If the stock isn't called, I'll sell calls on it again in a couple of weeks.
Hey Donald: Isn’t it easier to just sell otm puts instead of itm cc? Better liquidity as well.
Hank,
The beauty of selling out of the money puts is that a puts trade is one trade. Sell the puts. And, if needed later, buy them back. The risk is that you get a sudden 1,000-point drop in the Dow like we did Friday. That puts you closer to an exercise.
Then you have to decide whether to buy the puts back. I am short some puts that will expire this Friday and later in the month.
On July 18, I wrote about my strategy for selling puts. https://djincometrader.substack.com/p/a-bear-market-strategy-for-selling
Last week I bought AMAT, BAC, CLF, DFS, MGM, MRNA, QCOM and SU and sold ITM calls that expire on 9.2, 9.16 for annual returns on risk ranging from about 26% to as high as 109%. These are higher ARoR than I get from selling puts. So far, they're still trading well above my net debits (stock cost-premium-potential dividend collections before the options expire.
Don
Hey Don: Thanks for the detailed response--to clarify, I’m curious why you would buy stock then sell the itm call when you can do the equivalent by just selling an otm put.
Hank, I'm getting better AROR on the covered calls trades posted by CoveredCallsAdvisor.com
Today he posted a trade on GS and I quickly did it. I've done his last 13 trades and all but one, I think, is still working as planned. DFS still might be called. If not I'll roll the calls forward. Again, selling ITM puts is a good hedge and produces good income on a diversified portfolio of covered calls trade.
At the same time I'm short puts on other stocks and ETFs and I have several covered calls positions and some that I will roll forward when and if the prices snap back.
It's all about diversifying risks in terms of the number of trades, the timing of trades and the kinds of income trades I do. At the end of the month, I've made good dividend and premium income even if my stocks haven't done so well. I'd be down more than twice as much as I am on the year if I wasn't selling puts and calls.
After today's "dip", these potential ITM covered call candidates still are breaking out on point and figure charts:
ALLY, BKE, CI, EOG, GM, LOW, MET, MGM, PXD and WFC. We'll see how they do in the next few days.
On Aug.17, Covered Calls Advisor did this MGM trade and I did it the same day: http://coveredcallsadvisor.blogspot.com/2022/08/covered-calls-established-in-mgm.html
Covered Calls Advisor posted his latest in the money (ITM) covered call trade late today on Bank of America (BAC).
The stock was breaking out until if fell 2.14% today with the market. See his trade here:
http://coveredcallsadvisor.blogspot.com/2022/08/covered-calls-established-in-bank-of.html
DIA (DJIA30) is down about 640 points, or 1.9%. It was down 2%. QQQ is down 2.6% and IWM is down about 2.16% while SPY is down about 2.9%. I sold GIS (General Mills) 9.16.22 $75 strike puts for $0.67 and $72.50 puts for $.32. On the $72.50 strike, the RoR is about .413%%, or ARoR is about 6%. On the $75 strike, RoR is about .864%, ARoR about 12.6%. Margins of safety are 6.5% and 3.3% respectively.
With market down 451 points on the Dow, I'm waiting a few hours or days before I buy anything else and sell calls on them. This morning I am trying to sell GIS $72.5 and/or $75 strike puts after having GIS called ($75 strike) at a profit Friday. GIS is $77.75. GIS is General Mills.
Dow is down $480.20. CLF is down 3.18% to $17.27 where I bought it. Sold CLF 9.2.22 (11 days) $16 strike (delta .78) calls for $1.54. Estimated RoR 1.56%, or 51.88% ARoR if called on 9.2.22. Because of market conditions, I did a smaller trade than I was planning on Friday. If the stock isn't called, I'll sell calls on it again in a couple of weeks.