wriitten puts

  1. 22 Posts.
    I thought the forum might be interested in having a look at my portfolio of written (i.e short) puts for the expiry month of January. Some of these were sold months ago hence the different premiums. At that time the banks were at much levels than now (NAB>$34, CBA>$30)

    Share Number Strike Premium
    NAB 1 31.00 $730
    NAB 1 31.50 $920
    TAH 2 11.00 $520
    SGB 1 17.50 $630
    NCP 1 12.00 $570
    CBA 1 27.00 $540
    AMP 2 11.50 $540

    Total premium for January $4450 (less brokerage).Not a bad "income" for the month.

    My rules for "naked" put selling are

    1. Underlying must be profitable, paying a decent dividend (news corp as always the exception but the volitility is so high and the premiums generous ) and a stock I WANT TO OWN at the strike price.

    2. A 10% movement down and assignment still profitable when premium included and I am able to write calls against the stock at the purchase price.

    3. Stock is not grossly overvalued by fundamental analysis.

    If at expiry stock is below strike I roll down for a small loss-certainly not exceeding the original premium (i.e I rolled down AMP from $12 to an $11.50 strike last month for a three cent loss)

    If I am unable to roll down due to a price movement down then I let the option be assigned -so that I can sell calls against it.If it falls like a stone then I keep the stock (selling calls is not possible at the purchase strike) in my portfolio where it is paying dividends,etc.

    If the fundamentals change (LLC the perfect example) the you are in a no different position than if you bought the stock outright and might need to dump the stock and take the loss-like all the other punters.

    I can't highlight the point enough that you must be prepared to own the stock at the strike price for any written put.

    You need fairly deep pockets for this strategy but it is a much more active market participation than simply owning the blue chips in your portfolio.

    Benefits (as compared to simply owning a large portfolio) are

    1.You have some downside protection as you have the premium and have set a lower strike than the underlying is currently trading at.

    2.Also you can roll the strike price down, often for very small amouts and still staying "premium profitable" (try doing that with direct stock ownership) by selling more time premium into a more distant expiry

    3.You receive the dividend without actually owning the stock!! (Put premium goes up when the expiry date is beyond a dividend payment )

    4.All your margin funds are receiving interest rather than you paying interest on your borrowings

    If anyone is interested I'll keep you posted on the progress of these options. I won't burden you with complete portfolio for other expiry months. At the moment only TAH is underwater and I'd probably roll them out at a $12 strike for April. Mind you a lot can happen in 3 weeks and 3 days!!

    Best Trading

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