First and foremost, let me go out and say it: I'm glad I'm not in the APR butterfly right now.. Look at this 30 day st. deviation chart, for about a month we have had 1 large day just about every other day.. This means a lot of adjusting to stay in the trade, in fact, the position I considered entering this week would be already undergone a cut and roll.I'm in the process of re-evaluating all my trading, pros and cons, and the fact that with the newborn baby I want to spend some time with my family. I'm a firm believer that your trading style needs to match your lifestyle and personality. With a new baby and additional responsibilities at work, I'm finding the simple cash-secured put/covered call strategy a blessing from the sky.. :)
A reader posted a few good questions on my last posting, so let me repeat them here and address them to all:
What type of returns do you look for in your naked puts?
About 1 to 1.5% over the value held in margin. For a current position, I've sold the 72.5 vall on COST for about .70c, it is a bit below my goal, but since I was assigned COST last month, I wanted to start writing the calls anyway.
Overall, I'm looking to get about the same or better results as the market, with reduced volatility by selling the calls and puts to bring money into the bank when the stocks are moving side-ways.
Why naked puts over just buying the stock?
I start with selling a naked put, then I let it be assigned into stocks. Once I own the stocks I start selling the covered call. First of, you need to select the stocks you would like to own right away. Then, but selling extra premium with options you bank some money every month and reduce your down-side risk on the stock.
Isnt the margin and downside risk almost the same yet your participation on the upside is capped?
Yes, it is, the upside is capped, but I'm not looking to do this strategy on fast-moving stocks. My goal is to select a few stable stocks that I won't mind owning and keep selling premium every month, so while it seems the upside is capped, because you "refresh" everything, you essentially bring money every month regardless of what the stock does.
2 comments:
Congratulations on your newborn. It seems like this market wants to do nothing but go Higher, so your CC and CSPuts should do well....
NDX has been a real monster through this rally, but you traded it well. Hopefully you are back and trading the butterflies soon.
Best of luck!
Thanks Bobby!
Yeah, NDX was really active in the past iron butterfly I traded. I think my mistake was not closing it sooner, It hit 20% negative I should have headed towards the exit door, but decided to brave it longer and then took a deeper cut.
I like the butterflies, the challenges I have right now are time-related: I don't have a lot of time left (nor energy) to do a lot of thinking and planning at the end of the day..
Plus, I want to bring my wife along with the trading. She is sitting with me every night for about 30 min. to review the market and go over our trades. Having a super simple covered call strategy is the best way to get her engaged.. The Iron Butterfly is much more complex and would require a bigger learning curve, she is not interested in climbing that curve (yet) :)
Cheers!
Gustavo
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