Sounds good on paper but the market doesn't always play nice. Take a look at last August when IWN gapped down 2 points overnight five times. Once it was over 5 pts and if that happens, there's a good chance you become a bag holder (dead money).
Hypothetical example --> Compare the reults of buying at 76 and selling a Feb 76 covered call for 1 pt versus selling the Feb 76 naked put for 1 pt. Assume no carry cost or dividends. At all prices, the P&L is the same.
no. i meant try an entirely different trade idea. this is not going to be a profitable venture unfortunately. weekly cc's on any index or stock will eventualy leave you with losses.
I may be wrong, and it's not the same strategy that you are implementing, BUT, you could buy the security at, lets say 76, sell the call at 77 and purchase a put at 75. The premium from the call would be lost in the purchase for the put, (and then some possibly) but if the call and put are close to equal spacing from the purchase price of the security they are usually pretty close in cost. hypothetically, lets say the premium from the call directly offset the cost of the put. If the stock falls from 76 down to 75, your put is essentially your stop. If the stock rose to 77, you would make the difference between purchase price and the higher call, in this case $1. This way you have profit potential to the upside, and have a limited downside of risk. Granted, this isn't the best way to make money trading options but is something that is close to original plan. it just uses a put instead of a stop order, essentially.
What happens is the stock sell below 76 then rises above it then sells below it then rises above it? You will get nailed on the spread and brokerage. Just pointing out a possible negative. Runningbear
I'm not saying this is the only way or saying there's only one way to do things. Only stating to the OP a slight alternative to his strategy. You would only get nailed with the put and call if someone exercised early. In that case you could buy back the short call as its premium would go down if the price of the underlying security fell down to te put strike price Like I said before I'm only responding with a method as close to the OP's method as possible. It's not what I would do and isn't a perfect method, but can work when used correctly
I wasn't having a go just asking if you are keen to share some other ways or better ways to trade options.
Thanks for your input.Thanks for other replies as well.This is a weekly strategy and it may not work with IWM but with some more stable product it has a chance of working.