Hello gents: Here is an idea I been thinking of, but am unsure. Can calls be sold short on stocks with just cash to secure the possibility of an exercise? For instance, I like the market trend and the stock that say is trading at $48 and think it will continue to trend higher. I also like the call option premium at say $4 and want to scoop that into my account, now. At this point I don't want to be a call purchaser, since I can never be absolutely sure on the direction the stock will take before expiration - nor how quick plus time erosion, etc. But like I said, I'd like to sell the call short plus any appreciation in the stock up to the strike price (50) by expiration. I don't want to buy the stock and manage the sale if the stock drops to my stop. If the stock drops I want my call sell to become fully realized. However, if the stock moves like my hopes - ITM I not only profit from the call option premium PLUS the stock price appreciation or 6 bucks! Here is my dilemma. By not purchasing the stock or "covering" the call I could be in hot water as the option premium goes ITM. So what I propose is to have $50 set aside for each contract sold as I will be happy to give that portion of the stock price away. Does this idea of "cash-secured" call writing even exist? I GUESS I HAVE TO BUY THE STOCK AND PARTICIPATE IN THE APPRECIATION. (This is in bold, since after I write this all down and read it...I can usually answer my own question.) Or am I doomed to naked put writing - which I loathe since high premium stocks can gap lower and I don't want to incur that kind of loss - or to have a plummeting stock "put" to me at a price much higher than the market. Or perhaps I am doomed to bull put spread which of course are great (for this scenario), yet are reduced by the lower strike put purchase. In other words, if I've called the market trend "right" and I've done my research on the stock and expect it to do well enough (flat-to-up) by expiration AND I like the (high) call option premium - I just want to sell it and reap the cash return. I don't want to by calls, strangle/straddle/collar or bull put credit spread vertical or otherwise. MAYBE SOMEONE KNOWS THE STRATEGY THAT FITS THIS BILL. HELP! Gilbert
Yes, but why not sell the put? You need an account with portfolio margin so you can sell enough calls to make it worthwhile.
I outlined why I don't like selling the put. Scenario great market (call), great stock, great premium. 100k account. From now to expiration - say 6 weeks, I want to make $6000...spread out between 10 positions. OK forget covered call writing - I don't want to manage the stocks - some may go down to predetermined stop-loss target=headache. I won't sell the put on the same stock for nearly the same reason. $48 stock opens at 40...then takes 2 months to make its way to 30 then languishes for 6 months before becoming once again a "top stock". I DON'T WANT IT PUT TO ME AT 45. So what to do. I got 100k I want 6k. I'll sell the calls - expecting the stocks to do well, and am willing to give the $50 toward the stock price to the call buyer. I'd just rather not HAVE to buy the stock (and manage, like I said, its possible stop). I just want to "cash-secure" WITH $50 the short calls. Gilbert
I'm thinking I'll just have to go with Bull Put Spreads (same month, different strikes). Take the reduced premium (due to put purchase). And If 3-5 out of 15 move against me my profits will be lower (profitable nevertheless), yet the managing of the losers can be a no-brainer - since these losses are limited. Then just structure it accordingly to gain the ~6k in 6 weeks. Say average profit is $6 from winning spreads and losers average $3. So 4 losers or $12 from 11 winners or $66 yielding $48. Say 100 contracts each or $4,800. Now compound that over say on average 8 favorable months per year! This is just not as good as my other proposed strategy. Gilbert 100k 1 6x100=600 (1 contract) 2 6x100=600 (1 contract) 3 6x100=600 (1 contract) 4 6x100=600 (1 contract) 5 6x100=600 (1 contract) 6 6x100=600 (1 contract) 7 6x100=600 (1 contract) 8 6x100=600 (1 contract) 9 6x100=600 (1 contract) 10 6x100=600 (1 contract) 11 6x100=600 (1 contract) 12 3x100=(300) (1 contract) 13 3x100=(300) (1 contract) 14 3x100=(300) (1 contract) 15 3x100=(300) (1 contract) The other way I get say $9 for each call sell or $13,500 - but have to minimize losses by managing the stock price declines from the the 4 losers. Which is what I do with covered calls. For now I will just have to use stops on the stocks and buy cheap (OTM) protective puts on the few (namely any biotech holding) that might gap lower. Or like you say sell naked or cash-secured puts on most issues and do bull credit spreads on the 10-15% of my portfolio that is more risky (i.e. biotech) - PROBLEM SOLVED? Oh and use a limit on the naked put - perchance the a sharply declining stock still moves through my stop target and triggers a BTC to eliminating that headache. Now that I am finally thinking correctly WRT naked put writing and how it relates to my strategy objectives, its now making sense. Sell the put as an uptrending stock cycles through the lower part of its trading range (bollinger bands/RSI??) - slightly (or more) ITM. At expiration stong leading stocks become OTM = $$$. Unlike selling ITM covered calls that don't profit from the ITM portion...the ITM portion from the naked put sell CAN become profit! Any other ideas on strategies?