Saturday, April 28, 2012

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.

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