Put Selling over Covered Calls because...

1) Single commission;
2) If the stock shoots up in value, the value of the puts decline. Then close out. With covered calls if the stock shoots up so does the premium. This scenario is much trickier to close out for a profit.
3) If the stock declines a lot it sucks for both but it really sucks for covered calls as you bought at that price. Rolling options is much trickier on a covered call than a put when the stock declines. The out of the money put seller has a buffer of the out of the money strike plus the premium received before she gets hurt. In addition, it is much easier to roll down and out for a credit.
4) Leverage in a margin account is more powerful with puts. In fact there is no cost for using margin when selling puts.
5) Even though you don't collect dividends the premiums are higher on puts to reflect that.

Note: potential trades on my radar include PG, WMT and JNJ due to their recent weakness. A couple of strikes down from the present price, a couple or three months out oughta do ya. If they decline further it's easy to roll down and out for a credit.

Profitable Trade: SLV Naked Puts

Today the following puts expired worthless:

04/24/2012   STO 3 Apr 27 2012 29.5 Puts @.22     53.71

Margin maintenance on the trade was $1745. In three days we earned 3.08% return on maintenance or 374% annual.

New Trade: SLV Naked Puts

Today I entered into the following short term trade:

04/24/2012   STO 3 Apr 27 2012 29.5 Puts @.22     53.71

This is a tiny 3 day trade that is attempting to take advantage of SLV falling below 30, of precious metals consolidating their lows and of some wicked time decay. Margin maintenance on the trade is $1745. The return on maintenance is 3.08% or 374% annual. If silver drops we have many options to roll down and out for a net credit. As such an exit strategy is in place.

Profitable Trade: SLV Naked Puts

Yesterday the following naked puts expired worthless:


04/16/2012   STO 3 SLV April 21 2012 30 Puts @.29            74.71

Silver stayed range bound so these puts expired worthless. We earned 4.3% in 5 days on $1737.13 in margin maintenance. That equates to 313.9% annual. We'll look to put that margin maintenance to work soon. I like the opportunities provided by the recent weakness in JNJ. I'm looking at the 60 puts a few months out.

Trade Continuation: GDX Naked Puts

Today on options expiration Friday I continued the following transaction:


03/20/2012    STO 3 GDX Apr 21 2012 47.0 Put @ .53                146.75
04/20/2012    BTC 3 GDX Apr 21 2012 47.0 Put @.63                -201.24
04/20/2012    STO 3 GDX May 19 2012 45 Put @.97                    288.70

GDX has trended downward and was at ~46.40 when I continued this transaction. After draining every drop of time value I rolled out one month and down two strikes for a net credit. Margin maintenance on this trade is ~$2800. If these puts expire worthless we will earn $234.21 in 61 days which is an 8.36% return on maintenance or 50% annual. At the close GDX dropped down to 46.10. The precious metals miners have not been able to get much of a bid. Sentiment is very low and most of  the weak hands have had to have been scared away. In the event GDX continues its downward descent I will look to roll out and down again for a net credit. If put to us our cost basis will be $44.21 so we still have some breathing room in this trade. We will have time decay over the weekend and I won't look to roll down and out until I've wrung every drop of time value out of this trade.

Note: when these puts went into the money, margin maintenance increased to ~$3200 which will lower the returns

New Trade: Sold SLV Naked Puts

Yesterday I entered into the following transaction:

04/16/2012   STO 3 SLV April 21 2012 30 Puts @.29            74.71

Silver has been pretty steady in the 30 - 32 range for quite some time now. In this account we have some longer term trades so I wanted to put some shorter term money to work. Even though SLV has been range bound the option premiums are still relatively high. It is very easy to roll out and down for a credit especially since there are weekly options available so an exit strategy is in place. If these puts expire worthless we will earn 4.3% in 5 days on $1737.13 in margin maintenance. That equates to 313.9% annual.

Risks are strength in the dollar and that the GLD and SLV house of cards come crashing down as there is no guarantee these precious metals are backed by physical gold and silver.

Thoughts on GDX Trade...

I've always wanted online authors to reveal their thought patterns when a trade seemingly goes against them. Alas, there head is usually in the sand. I'm bucking the trend with this post.

Well GDX has fallen below support and seems to be consolidating at ~46. I sold the April 47 puts @.53 in one account. There is still some time decay to be had and I'm going to gobble it all up before deciding what to do next. Next Friday at expiry I'm looking to roll out and down to the May 45's but only if I can get a worthwhile credit. Otherwise I will roll out and down to the May 46's or July 44's.

Either way I expect a floor to be in place soon. The Fed saying they aren't going to engage in quantative easing for a while is hogwash IMO. Our debt is rising as I type. In any event there are many more strikes that I can roll out and down for a credit. My undefeated streak ain't ending on the gold miners!  :)

Any thoughts?

Profitable Trade: Walgreen's (WAG) Naked Puts

Today I closed the following transaction for a profit:

02/28/2012    STO 3 WAG Apr 21 2012 31 Puts @.59    164.71
04/02/2012    BTC 3 WAG Apr 21 2012 31 Puts @.05    -15.04

We made $151.67 in 33 days on ~$1400 in margin maintenance. This equates to a return on maintenance of 10.83% or 119.78% annual. These returns are inflated because there was an upcoming quarterly report and fear of fallout from the Express Scripts deal.

My Favorite Blog...hands down

My favorite blog is Fully Informed. This author, Teddi Knight, is brilliant and experienced. I've been investing for over 20 years but she has been trading for 42 years. When I see she has a new post I giddily click on it and voraciously devour it. Well, maybe not with so much drama but you get the point. :)

Most blogs I read in all honesty don't enlighten me and it seems that some generate articles just to attract potential marketing dollars to their site.

To each his own but I have to say: Fully Informed rocks!

Honorable Mention: I also read Bill Cara's Week in Review every week. Bill has been trading for 50 years or so. Cara's blog can be found here. 

Happy Trading