Forward Thursday: Nothing Could Be Drier Than a Jolly Caucus Race [View article]
I like that Howard, as far as a solution for the restricted.
Overall though, our logic is to only sell puts in positions that we REALLY want to own at that price so there's not too much "penalty" if we are assigned the underlying.
In AAPL's case, if I look at April, I can sell the $345/335 bear put spread for $2.80 (similar to yours) and pick up the $350/360 BCS for $6 and that's net $3.20 on the $10 spread that's in the money to start but the risk is still $13.20 at $335 while we could, instead sell the $325 puts naked for $3.10 and we don't lose $13 until AAPL is down around $315.
Also, of course, those $325 puts can be rolled out to the May $295 puts (now $3.10) so we're pretty happy with the 20% downside cushion.
AAPL is not generally a stock we would do this with as it's too volatile but we do like to promise to buy it for $210 in Jan 2013 and collect $10.40 for those short puts that are 40% out of the money and then use that for something like the Jan 2012 $330/365 BCS at $19.60 and then we're in the $35 spread at net $9.60 and, if that one works out, we just roll out to 2013 and go for another $25 profit - not a bad way to play when your worst downside case is you own AAPL at net $219.
Forward Thursday: Nothing Could Be Drier Than a Jolly Caucus Race [View article]
Overall though, our logic is to only sell puts in positions that we REALLY want to own at that price so there's not too much "penalty" if we are assigned the underlying.
In AAPL's case, if I look at April, I can sell the $345/335 bear put spread for $2.80 (similar to yours) and pick up the $350/360 BCS for $6 and that's net $3.20 on the $10 spread that's in the money to start but the risk is still $13.20 at $335 while we could, instead sell the $325 puts naked for $3.10 and we don't lose $13 until AAPL is down around $315.
Also, of course, those $325 puts can be rolled out to the May $295 puts (now $3.10) so we're pretty happy with the 20% downside cushion.
AAPL is not generally a stock we would do this with as it's too volatile but we do like to promise to buy it for $210 in Jan 2013 and collect $10.40 for those short puts that are 40% out of the money and then use that for something like the Jan 2012 $330/365 BCS at $19.60 and then we're in the $35 spread at net $9.60 and, if that one works out, we just roll out to 2013 and go for another $25 profit - not a bad way to play when your worst downside case is you own AAPL at net $219.