Registered: May 2009
09-30-12 06:29 AM
Quote from RobtF:
If I wanted to write puts for income with portion of portfolio (on stocks I wouldn't mind owning) is there a sweet spot, say two, three weeks before expiration?
The problem with your question is,... it's too theoretical.
Applying theoretical to the "real world" of investing, will cause problems for you.
For example, theoretically, 3 weeks out is when theta really starts picking up steam, and that final week the theta train is rolling downhill super fast.
But in the real world, the issue is NOT simply one of time decay.
The issue is always about the "blend".
That "blend" being,... "time, desired strike price, % return, and dollars earned."
While you may like a theta friendly 3 week trade, your desired strike may be too deep OTM.
Thus making the bid/ask either really puny, and/or too wide and thus difficult to fill. For example $0 - $0.20. Don't assume you'll get the middle on such a S-T trade.
That 3 week trade may give you a fantastic, super high annualized % return, ( as most 1 - 3 week trades do).
But the dollars earned may not fill your car with gas.
Thus, it's probably best to consider trades in the 1 - 3 month range.
That range allows you to evaluate various choices, as to which combination offers the optimal "blend" of.... strike selection, % return, dollars earned, and time decay.