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.
Hi Don. Just so that I understand when reading your comment here. "When SPY was $415, I sold another 9-day SPY $439 strike put for another $1.08, or a RoR of about 9.6%. The margin of safety was a risky 4%, and the ETF was assigned to me. MOS equals stock price vs strike price."
I never had considered selling a PUT that deep into the money. Am I reading that correctly?
If that PUT gets assigned to you and the price of SPY stays at around $415, you have potentially lost $1,400 minus the premium.
For example, if I sell a PUT today on SPY at the current mark of $437, then if I move into the money to $460, for March 28th. And if SPY stays at $437 or lower, the up front premium on that trade is $2134, but my potential loss is $2,400 or greater, minus the premium I earned up front.
Why would I want to design this trade so that it almost guarantees that I get assigned that stock at such a high cost? Even though the premium is healthy?
Patrick. Good catch. Unfortunately, I didn't see the error until about an hour after I sent the newsletter to subscribers. The stock price was about $457 when I did the trade. I've corrected the number, but the platform won't let me send the post again.
SPY is ex dividend today. My 3.18.22 $440 strike is safe because pre market SPY is at about $437, down from last night's $439.70 close. Are you saying I should not buy it back today when and if the option falls to $0.05 or lower? I'm sure I can buy the option back for less than the dividend. Is that what you would do?
In any case, I don't think I'll roll the trade or any trades until Monday. Nobody knows what Putin will do over the weekend.
Since SPY $440s now in-the-money, if you are trading in a tax-free account (like an IRA), I would suggest letting it be assigned today, thus capturing both the ex-dividend and all the time value from when you initiated the position.
With SPY at $444, it would have cost me $4 or $5 to buy the calls back. Since the dividend was about $1.64, it didn't make sense to do that. So I let it be called in a taxable account because of the low dividend yield. But because I get good RoR from selling puts and calls, it could be in an IRA with high dividend paying stocks.
Hi Don. Just so that I understand when reading your comment here. "When SPY was $415, I sold another 9-day SPY $439 strike put for another $1.08, or a RoR of about 9.6%. The margin of safety was a risky 4%, and the ETF was assigned to me. MOS equals stock price vs strike price."
I never had considered selling a PUT that deep into the money. Am I reading that correctly?
If that PUT gets assigned to you and the price of SPY stays at around $415, you have potentially lost $1,400 minus the premium.
For example, if I sell a PUT today on SPY at the current mark of $437, then if I move into the money to $460, for March 28th. And if SPY stays at $437 or lower, the up front premium on that trade is $2134, but my potential loss is $2,400 or greater, minus the premium I earned up front.
Why would I want to design this trade so that it almost guarantees that I get assigned that stock at such a high cost? Even though the premium is healthy?
Am I looking at this, your trade correctly?
Patrick. Good catch. Unfortunately, I didn't see the error until about an hour after I sent the newsletter to subscribers. The stock price was about $457 when I did the trade. I've corrected the number, but the platform won't let me send the post again.
Did you consider today's ex-date for SPY?
SPY is ex dividend today. My 3.18.22 $440 strike is safe because pre market SPY is at about $437, down from last night's $439.70 close. Are you saying I should not buy it back today when and if the option falls to $0.05 or lower? I'm sure I can buy the option back for less than the dividend. Is that what you would do?
In any case, I don't think I'll roll the trade or any trades until Monday. Nobody knows what Putin will do over the weekend.
Since SPY $440s now in-the-money, if you are trading in a tax-free account (like an IRA), I would suggest letting it be assigned today, thus capturing both the ex-dividend and all the time value from when you initiated the position.
With SPY at $444, it would have cost me $4 or $5 to buy the calls back. Since the dividend was about $1.64, it didn't make sense to do that. So I let it be called in a taxable account because of the low dividend yield. But because I get good RoR from selling puts and calls, it could be in an IRA with high dividend paying stocks.
Good point. I missed that when looking at this.