Options For Sale

I sold the Conoco Phillips (COP) August 50 put for $1.32. It is an expansion of a strategy I’ve been deploying all year with TLT. I call it Put Me First, Call Me Last for short. The basic idea: to start this game, you sell a put below the market. Then when the price sells off, you get assigned and become proud owner of 100 shares per put sold. Then you sell a call above the market. After the market rallies, you get your stock taken. It’s a premium collection strategy at its heart. Because you’re the seller, time decay is on your side. This means that if nothing happens, you’re good. Ho hum, big deal, I’m happy.

The key to this strategy is to pick a stock that you don’t mind owning. I started with TLT back when it was selling in the 90s. It pays a dividend and it tends to go up in most “end of the world” scenarios. My method for stocks is a simple 2-step process. Step one involves sorting based on the following criteria:

  1. $1B market cap — not likely to evaporate overnight
  2. 1 million daily shares traded — liquidity
  3. Yield of 4% or more — pays dividend
  4. Positive EPS –makes money
  5. Price between $15 and $100 — various random reasons

Step two is to find good liquidity in the options chain, pick one that is in a relatively strong industry group and make sure its technicals and/or fundamentals are not screaming to stay away.

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