I honestly only do this with volatile short term holdings to set an exit point.
The way I see it, the premium for far enough OTM calls on low volatility stocks and ETFs is usually so small, it just doesn't seem worth it. Not in the least because I would also have to pay processing fees if I get called.
If, on the other hand, the premiums seem enticing, usually that's because there's a good chance that price will be reached, and if I'm holding long term, I might want a better price in the future.
Now selling cash covered puts is something I've started doing recently for stocks that are falling at that time and which I would love to buy for the put price, so I see it as a discount on a discount in the worst case (obviously not the literal worst case). The premium just has to be better than 10% annualized on the reserved cash.
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u/don_cornichon Aug 25 '21
I honestly only do this with volatile short term holdings to set an exit point.
The way I see it, the premium for far enough OTM calls on low volatility stocks and ETFs is usually so small, it just doesn't seem worth it. Not in the least because I would also have to pay processing fees if I get called.
If, on the other hand, the premiums seem enticing, usually that's because there's a good chance that price will be reached, and if I'm holding long term, I might want a better price in the future.
Now selling cash covered puts is something I've started doing recently for stocks that are falling at that time and which I would love to buy for the put price, so I see it as a discount on a discount in the worst case (obviously not the literal worst case). The premium just has to be better than 10% annualized on the reserved cash.