Guys my portfolio is invested in non callable bonds maturing 2040s from T\VZ\CMCSA earning about 5% interest yearly which I reinvest. Now I want sell some OTM puts just increase my return by 3-5% annually. My only issue is these bonds are semi-liquid, so if my options are assigned then I will take a hit on these bonds. What are my options, Is the extra returns not worth the risk?
So get a bid on the bonds if/when you get put - then decide if you rather give up the spread in the bonds or pay the margin interest on the stock being put to you. What you've essentially created is a reverse convert so next time you may want to check if there any names in underlying stocks that have reverse converts you have an appetite for. It sounds like your planning on holding to maturity - so interest rate risk is going to be a big concern on those long-dated bonds. Is put selling against the SMA that the bonds generate worth the risk? That's a personal risk issue and I would take quality equity risk ahead of the interest rate risk in the long-dated debt, but that is a personal risk choice.
Selling OTM puts on the index is synthetically equivalent to buying a junk bond with AAA coupon rate; Not only is the return abysmal but the trash bond will eventually default and wipeout your entire portfolio. Considering using the interest you earned on your 2040 bonds to finance call options on the underlyings you want. These could have the potential to provide several hundred times return if the underlying security gaps up, with limited downside. Much better risk/reward strategy than selling puts.