1) Start the trade with a cash-secured PUT: Sell a put, have enough cash in the account in case I get assigned the put. For instance: I sold a 72.5 PUT on COST, and kept $7250 on my account, this was sold for about 0.8c (~1%).
2) If the stock drops below the PUT strike, let it get assigned. Then the next month I sell the next Out of the Money CALL for about ~1% as well.
3) If the stock goes drops 8%, I close the position (either buy back the put, or sell the stock & close the short call)
Note I'm still trying to figure out the best approach here, just used these simple rules above in order to get started.
I have also started studying the low moving stocks where this strategy would work best.
No NDX Iron butterfly in place right now, the covered calls are working out ok with this recent up move.
Do you look for the stock to get called away or do you buy back the call? Also do you have any downside protection?
ReplyDeleteSo far, here is what I have been doing:
ReplyDelete1) Start the trade with a cash-secured PUT: Sell a put, have enough cash in the account in case I get assigned the put. For instance: I sold a 72.5 PUT on COST, and kept $7250 on my account, this was sold for about 0.8c (~1%).
2) If the stock drops below the PUT strike, let it get assigned. Then the next month I sell the next Out of the Money CALL for about ~1% as well.
3) If the stock goes drops 8%, I close the position (either buy back the put, or sell the stock & close the short call)
Note I'm still trying to figure out the best approach here, just used these simple rules above in order to get started.
I have also started studying the low moving stocks where this strategy would work best.
Hope this helps!
Gustavo