Selling Premiums On Stocks

There are quite a number of funds selling premiums on index options but I have not come across any funds doing the same on stocks. The same goes to traders here. Many long threads on index options but not too many on selling premiums on stocks. Why?

 

No idea.

It's my main strategy, has been for years.

 

There are many covered call mutual funds and ETFs out there....

 

Yes, but I was thinking why don't they expand it to include selling puts on stocks that they are willing to hold if exercised against, and in the meantime, collect premiums. As for the stocks that they end up holding, they can then sell calls against them, at least on those that they are not particularly bullish about. Is this kind of strategy widely used? Or, is it workable?

 

Do you concentrate on just a handful of stocks or do you scan a large number of stocks to see if they fit your criteria to execute various strategies?

 

This may not be the general consensus, but here are my 2 cents:

1) It takes much less work to analyze the economy on an overall basis than it does to analyze specific companies.

3) Entry and follow-up adjustments are generally easier due to a greater selection of strikes and/or months.

2) While indexes may offer lower returns, they also offer a lower degree of risk.

3) Indexes also have certain tax advantages.

I'm sure there are others...but I haven't had any coffee yet

 

Tyrant

Both. I have a “core” of half a dozen stocks which I’ve come to know, and trade very regularly. But I’m also constantly looking for opportunities in other stocks and will trade anything if the price / IV is right.

Optionspoet

Possibly. But that doesn’t make an index with many different stocks / weightings / correlations, each pulling in a different direction, any easier to predict.

As a rule I’d agree.

Disagree. I think fat tails are more prevalent in indices than stocks. The reason being that when a big down day comes, all stocks correlate highly, thereby exasperating the fall in the index.

That probably depends on the country from which you trade. No tax advantage here (London).

 

Perhaps indexes are generally a more "continuous" market.

You can get gaps, but not huge gaps like individual stocks. This makes defense more viable.

Black swans fly more often in stocks than indexes.

$0.02

 

I've never seen a black swan - do they exist ?

I suppose you'd have to look at the market(s) you trade to see if there are fatter tails in the index or the component stocks. I guess every market is different. Certainly in my market (UK indicies and stocks) there is more Kurtosis in the indices, than there is in the stocks. Though arguably that is accounted for in the index vol skew.

 

Indeed they do. Native to SW Australia.



Re: Indexes-stocks

As an e.g., I refer to ELN a couple of years ago, where the giant sabre toothed black swan put in an appearance. (long thought extinct, but often proven otherwise)

An undefendable and ruinous gap if short naked puts.

Indicies of course, can have teeth as well, but this is much rarer and there is more opportunity for defensive adjustments, IMO.