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Writing puts

  • 1.  Writing puts

    Posted 03-15-2025 07:28

    I recently attended a seminar by the NY chapter by Markus of Rockwell trading about writing puts.

    Though informational and educational, it feels like a very risky strategy for an individual investor. 

    When you sell puts you have huge downside potential and limited return. 

    In markets like last week, if you sell puts for a 5 percent premium and the market goes down by 10 percent, you would be wiped out clean, no?

    I wanted to reply to the link posted by Dennis but it is view only.

    That is why I am posting it here.



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    MA|Investor-NV
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  • 2.  RE: Writing puts

    Posted 03-17-2025 12:28

    May I humbly suggest that you would do better to play blackjack against the house in Vegas? Why fool around with crazy strategies when a tried-and-true method of buying and holding good assets is available?



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    Rob Adams
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  • 3.  RE: Writing puts

    Posted 03-18-2025 10:37
    Covered puts and calls are a very low risk strategy.    If you can sell a put for an equity that you are ok owning at the price point agreed to, then what's the problem?    I sell covered puts regularly as a way to put my cash to work.   I don't make much money on the transactions because I sell puts that are not likely to be exercised.   If I can make $50-60 a month on $4000 in cash that I have to "cover" the put, it turns out to be a lucrative transaction over time. I do this month after month.  Annualized, it can be anywhere from a 5% to 12% gain.  Most gains are around 7% annually from just the sale of the puts.  The more volatile the price of the equity, the more I can earn, along with a bit more risk that I'll have to buy the equity at the price I've agreed to do so.  I've been doing "out of the money" covered calls and puts for 30 years and earn about $700-$1000 a month extra by doing so.  The number of Puts that I've had get exercised is very low, and in each case, I didn't care because I was OK owning that asset at the price of the put.    I've never lost money doing that.   In a few cases I had to wait for the stock that was purchased through a put to recover, in which case there may have been an opportunity cost assuming I had another place I wanted to deploy that cash in lieu of the stock I purchased through the sale of the put.   

    Tom




    Original Message


  • 4.  RE: Writing puts

    Posted 03-18-2025 11:02
    Edited by ROBERT ADAMS 03-18-2025 11:02

    The problem I have with covered options is (1) they're taxed as ordinary income and (2) my good equities might get called away just when they're performing at their best---and then I have to pay taxes on the gain from their forced sale! And all that for relative nickels and dimes in return. No thank you!

    Over the decades I've owned them, there have been many times that stocks like AAPL and MSFT would have forced such sales, and then, after incurring the taxes on whatever gains I had at the time, I would have had to try to buy back in, most likely at a higher price, if I wanted to keep them (which I did---and do). I'll keep the thousands of dollars in qualified dividends I receive from them each quarter as "consolation" for missing out on the options proceeds.



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    Rob Adams
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  • 5.  RE: Writing puts

    Posted 03-18-2025 11:49

    Good point Robert.   I only trade in my IRA and 401K.   So no tax implications for me.



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    Tom McGrath
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  • 6.  RE: Writing puts

    Posted 03-26-2025 23:58

    There are a view rules for options.  sell them in a tax advantaged account.   Sell the put at a price you are happy to buy the stock at.   It should be a stock you want to own.  sell the call at a price you are happy to sell the stock at.    



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    MARK SHEINGOLD
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  • 7.  RE: Writing puts

    Posted 03-22-2025 06:45

    Thanks for sharing, Tom. So do you regularly hold shot positions for writing protected puts? 



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    MA|Investor-NV
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  • 8.  RE: Writing puts

    Posted 03-18-2025 14:19

    If you decide to bet against Dr Bob's wise advice on puts, you are betting against the house.

    "Welcome to Hollywood. What's your dream?"



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    BARRY JOHNSON
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  • 9.  RE: Writing puts

    Posted 03-22-2025 06:47

    when you write puts, you are the house



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    MA|Investor-NV
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    Original Message


  • 10.  RE: Writing puts

    Posted 03-22-2025 06:39

    Hi Rob

    With all the tariff and trade talks, I think the market sentiment will be negative for couple of years. In such a scenario, is there a way to protect on down slide and preserve capital. IF need arises, can one generate income when market is going down? There are some new ETFs like YMAX and YMAG. But I am not clear about how they do it and what the risks are. 



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    MA|Investor-NV
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    Original Message


  • 11.  RE: Writing puts

    Posted 03-22-2025 13:14

    Vinod, I have to disagree with you that you are the house when you write puts. You are, in effect, betting against the market. To me, it's akin to any other effort to predict short-term stock movements. (Note that I firmly believe one can predict the general movement of the market---and even individual stocks---in the long run.) According to Investopedia, "Profit on put writing is limited to the premium received, yet losses can be rather substantial, should the price of the underlying stock fall below the strike price." No, you're not the house.

    Yes, there is a way to protect against the downside and preserve capital in the long run. You can do that by buying and holding good assets and staying the course. The capital I had invested in MSFT, HD, LOW, AAPL and others was preserved quite well, despite the crash of 2007-2009, because I stayed the course with them. As a long-term investor, I use market downturns to buy good stocks and make tax-efficient reallocations, and that's all. 

    As for YMAX and YMAG, I will stay away from them. Each is actively managed, has an expense ratio well above 1%, and has an abysmal price performance since inception. On the surface, the yields look good, but I'm pretty sure most of the distributions would be non-qualified, and when you compare the yields with the price drops, they're not so spectacular. You have to put your faith in the crystal balls of whoever runs these funds, and that's even worse than relying on your own crystal ball.

    I confess that mine is a biased view, based solely on my 40+ years of involvement in the market. From where I sit, brokerages and fund managers are usually the ones who make big bucks off of complicated, opaque strategies; the clients, not so much. Of course, there are exceptions to every rule, but I like going with the rules instead of the exceptions.



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    Rob Adams
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    Original Message


  • 12.  RE: Writing puts

    Posted 03-27-2025 00:01

    But if it is a stock you wanted to buy anyway, if it craters, it would have cratered if you bought it anyway.   Robert, you have done very well, so keep investing the way you invest.   If it is not broken, don't fix it.   



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    MARK SHEINGOLD
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    Original Message


  • 13.  RE: Writing puts

    Posted 03-22-2025 13:24
    Edited by ROBERT ADAMS 03-22-2025 13:26

    Two more things, Vinod. First, I generate income in a down market from the same dividends and ETF distributions I receive when the market is up. They usually don't drop significantly in down markets.

    Second, take a step back and think about your statement: "I think the market sentiment will be negative for couple of years." What you're saying is that you have insight into what millions of other investors are going to think over a two-year period in the future. Thus, all you need to do is time the market in accordance with your mind-reading expertise, and you can become the first trillionaire. If you can make that work, more power to you. 



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    Rob Adams
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    Original Message