Hi All Suppose you have a working capital of about 800k. Now you do weekly cash secured puts on stocks you are confident to own if assigned, and if assigned sell calls until the stocks are called away. Of course this only works if the market does not crash like in 2000, 2008, etc. Is it realistic to think this can become a primary source of income? Building on this, what is the equivalent strategy in a total bear market for the above? I don't want to sell any call spreads. Thanks for your help.
What type of returns are you expecting during times without big drawdowns? How will you protect yourself against corporate surprises?
I think he could aim for a 12-15% annual return, assuming the market is at least breakeven for the year. But he has to diversify and spread that capital among at least 4-5 stocks. If he picks good dividing paying stocks, that adds another 3-5% to the result. I wouldn't do the weeklies with that many stocks, the commission is going to be too high...
Terrible idea. You are much better off selling the index puts. There are no "safe" stocks. If you are under 35 and want to take the risk of selling premium, fine. You have your whole life to go back to work and make it back. If you are over 35, don't do this shit. If you lose 50% of your money and you are in your 40's or 50's, you are not terribly employable and the shock from the event will keep you from ever touching the market again.
I have a friend who does what you seek. He started with high 2s, and may reach 1mm next year. This is over a decade or more. He was a full-time attorney, now his practice is "a hobby." I don't like it. I told him just this past week that he practices in The Black Arts. I am very much biased against having a long or short position in the market (short of a 10-15 year horizon). But he makes it work, doing much as you describe (enter via puts; worked short calls). He works the name-brand stocks, but he also owns long term those with high dividends and/or very attractive fundamentals. And by "long term" I mean, when his energy portfolio took a swoon, he didn't bat an eye. When his WYNN went south, he didn't get nervous. When .... well, you get the idea. It ain't for me. But he considers index spreads to be gambling. "Black arts" even. And there we are. I would advise one thing: put your household budget into tiers, and decide, for example, if an extended bear hit, what things, IN WHAT ORDER, would you address in everyday household spending. Having that plan ahead of time -- just like exit plans in trading -- takes that Deer In The Headlight look away.
Difficult to call, but even if the markets crash, as long as you're only 25% invested at any given time, you'd survive a down market. Eventually it corrects. Dollar cost average at the right moment will ease retracement to moving average. Stick to div aristocrats, best blue chips with solid fundamentals, low beta, low vol.
Bad risk reward for outright selling near term premium.. Huge explosive gamma risk... I'm with maverick.... Wait till you get 20-25 plus vix and sell farther term puts 3-5 months out...keep your job.. there will be only 4-8 trades a year... If you get assigned keep working at your job and continue to sell puts cash secured... Don't sell calls and don't sell your shares.. there is a variance premium in the index.. so stick with that.. don't take single stock risk...
Of course stops are in play, you must know that is a given amigo. Were you able to call extended bear markets before 2000 and 2008? I do occasionally use trailing stops myself. I read somewhere, about doing away with stops. During flash crash many got stopped out and were not able to buy back during the bounce.