You seem to write quite a few contracts every week. I have a few questions.
Do you have a set of stocks that you study and select your options on, or do you randomly look for good option choices from a larger set?
I am holding about 110 stocks. They are in various sectors such as pharmas, industrial metals, mining, agriculture, semiconductors, energy, etc... These are all stocks that I am willing to hold long term, whether I write options on them or not.
Because I am already somewhat familiar with their fundamentals though not really up to date, I limit my option selling on these stocks.
If one of my stocks jumps up big, I ask myself if that is warranted. I check the news on the company, earning report, industrial news on this sector, etc... I wait a few days for the crazy buying to slow down a bit, and when I sense that the stock is topping out and buyers dwindle, I will sell an option at an even high price.
Same with one of my stocks that goes down. If there's really no bad news, and I detect no change in fundamentals, I will write a put to buy at an even lower price. This means I must be willing to buy more of what I already hold.
As a stock picker, this forces me to look at my stocks that move big out-of-synch with the market. Occasionally, I may just sell a stock out right if I see something bad with it, but this is rare.
When you say things like 10 contracts expired this week, is that 10 different stocks or do you write multiple contracts on a given stock?
Generally, the contracts are on different stocks. I may have more than 10 lots of a stock worth $50/share, but I also have stocks that are $700/share. It's hard to have too many lots of these high-priced stocks.
As I also manage my wife's account (she knows little about investing and gave me POA) and often have the same stocks in my and her accounts, I sell the same contracts on both.
However, I usually stagger contracts on the same stock, so that if the stock keeps going up I can get a higher premium, or the same premium with a higher strike price. I hate to lose all the shares of one position because of ill timing on selling the contracts.
Do you write contracts with a different duration or strike price on a given stock at the same time?
As mentioned, I usually stagger the contracts if I have multiple lots of the same stock. For example, on Monday I may write a contract at strike price of $50 while the stock is at $48. If the stock keeps going up, on Tuesday I may write another contract at $51. And if it gets near the end of the week, I may write one for the next expiry.
Again, I ration myself so that I will not exhaust all of my shares if a stock proves hotter than I imagine. Back to the example above, if the stock moves up to $52 by Wed or Thursday, and the overall market mood is bullish, I will start thinking about writing a put to buy it back at $50 next Friday, then at $51, etc... If I wait too long on a hot stock, it may keep going up and I lose out the opportunity on a good stock that I should not have sold.
I usually aim for an option with a delta of 0.3 or less, meaning the chance of it getting assigned is 30% or less. This may not mean much as the stock volatility can be so great that an option changes a lot within the same trading day.
Why is joe calling me out on a separate thread? What have I done?
