Hi Ric,
I wanted to let you know and thank you, yesterday I closed my first profitable
naked put. (+$650.00 GMCR). I could have made an additional $200, if I had waited till expiration,
but I was happy to book the profit.
I'm trying to figure out how much of my put writing allocation needs to be invested most of the time?
I'm trying to figure out how much of my put writing allocation needs to be invested most of the time?
If I have $30k for this strategy and want to achieve 20+ % gains annually. Note also that I'm more comfortable for now
having the loss protection of owning the lower strike put. Any advise for me?
Jeff
............
Jeff,
Congratulations on your profitable GMCR trade. I would immediately look for another trade with >10% downside protection
and greater than 20% return. If you want to make 20% annually, you'll need to stay invested at that rate. As to booking
a gain early, you should calculate the return available from the remaining premium then judge whether you can get a
better return some where else.
Annualized Return on Remaining Premium = (Remaining Premium / Strike Price) x (365 / days left till expiration)
For an Out-of-the-Money Put like we're writing, more premium decays from 30 days to 0 days than does from 60 days to 30 days.
That's why I always look to write the front month. This is not true, by the way, for In-the-Money Puts.
Utilizing the Naked Put strategy, one also needs to understand the In-the-Money Covered Call strategy to utilize when shares
get put to you and the Repair strategy to utilize when shares get put to you at a big loss. I'm in the process of writing a book
that draws all these strategies together.
Jeff
............
Jeff,
Congratulations on your profitable GMCR trade. I would immediately look for another trade with >10% downside protection
and greater than 20% return. If you want to make 20% annually, you'll need to stay invested at that rate. As to booking
a gain early, you should calculate the return available from the remaining premium then judge whether you can get a
better return some where else.
Annualized Return on Remaining Premium = (Remaining Premium / Strike Price) x (365 / days left till expiration)
For an Out-of-the-Money Put like we're writing, more premium decays from 30 days to 0 days than does from 60 days to 30 days.
That's why I always look to write the front month. This is not true, by the way, for In-the-Money Puts.
Utilizing the Naked Put strategy, one also needs to understand the In-the-Money Covered Call strategy to utilize when shares
get put to you and the Repair strategy to utilize when shares get put to you at a big loss. I'm in the process of writing a book
that draws all these strategies together.
Ric Miller, Ph.D.
6-Sigma, Master Black Belt
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