|Sorry for the delay, I have been trading quite fully the Futures Market. Have not been on SI much, except for the occasional post here and there. |
Actually I've been scaling back on the BUY-Write stuff because the Futures Markets have been working very well for me. I took a seminar last July/August with Mr. Williams; His stuff just made my game completely awesome.
The seminar was held in Chicago and was fairly expensive. I was obligated to trade stock for a hedge fund at the time, and underutilized what Mr. Williams presented. But since I left the Hedge Fund last month my numbers have exploded. I've never done this well.
But back to the Options Buy-Write.
The issue with the Buy Write is to take in Long Puts, perhaps also Long Calls both Long Dated. I say Long Puts because the Market is in a Bullish Posture. And so you are writing Short Term near the money Puts against Longer term slightly OTM Puts.
Now, using Puts as the example.....Calls will be the flip side of this.... Today for instance I took in September 55 Puts on the Buy side at $4.05 and wrote May 62.50 Puts for a credit of $3.15 --
GMCR was the stock, by the way.
So I have a debit of 95 cents. Now, I like GMCR, so I have the risk of a $7.50 loss if the stock is put to me at Expiration and I can lean on that Put to write Calls against it.
If, on the other hand, the stock rises in Value slightly I can write again.
If, on the other other hand, it rises significantly I still have Value in the Long Dated Put while the Short Dated Put goes to zero. So, I push the Sept 55 up and out and write a higher Put.
OR......in the event GMCR Close below 62.50 I roll that Put out and collect more Premium, still leaning on the Long Dated Long 55 Put.
Currently I've been doing this on LVS, NFLX (a Weekly Option....bounces back and forth like a ping pong ball), AAPL---also a Weekly, and a couple of others.
So, I think to answer your concern yes it's true that on any given week or month I may have to cover and what actually happens is that I just roll the short dated one out. Sometimes, rarely, I actually get zinged with assignment. But it's covered on the downside with the Long Dated Put. So I just write the call, and use the Put for a backstop.
Now when the stock moves significantly in the Plus direction I roll the Long Put up and out. Using Calls, you just do the opposite; When you are Long, Long Dated Calls and Short Short-dated Calls, you roll up and out on the retracements.
It's a slow way of making money, but it does work. You will get these aberrations, such as the wide swings NFLX had over the past month. But by the same token you will get what I had in NFLX over the past week when I was Short the NFLX April 29 260 Calls for 6 bucks and covered for 6 cents, and short the April 29 235 NFLX Puts for $6.85 and they Closed at $2.75 today.
It's a matter of moving with the Price Action. The underlying shoots up; you take your Long Puts and roll up and out. Unless you get a solid drive in one direction Price will always retrace to some degree, and and now your hedge is higher. Then you go to the Call side of the Ledger and do the same thing you just did on the Put side.
My favorite is AAPL. It is very predictable. But as someone who trades Q's, you know of course the influence AAPL has on the Q. I understand they are going to re-balance the Q's to make AAPL less of a factor. Perhaps they already have. Still, it's a great vehicle for trading the Long Put or Call against the Short.
I'm Long AAPL, Long Puts, Short Calls, Long Calls, Short Puts and all of my kids have identical positions.
If Dad has a position, everyone has a position ;-)
as your short options (hopefully) expire, simply rotate the longs closer to "the money".
That's the general idea, yes.
all such strategies seem to work better on the side of being long longer term puts
Perhaps, maybe. I think it may look that way at the moment because we are in a bull phase. I tend to do both sides of the ledger but I favor the Put side at the moment.