Tweaking a Strategy for Investing In Shares Using Options...

marathonic

As you might notice from my other thread, my strategy for trading Options and Shares is a bit hap-hazzard at the moment and I'm looking at setting out a defined strategy which can be tweaked through time.

As I'm bullish on the market in the medium - long term, I've decided to use a strategy whereby I sell close-to-the-money naked puts every month that are two or three months away from expiry. I'm only going to buy shares when the Puts are assigned. Otherwise, I'm going to build my cash balance.

I've listed a set of rules below and a sample of how the strategy could go (using current prices and two month expiries).

I'm open to comments on this strategy or suggestions from anyone on how this could be improved.

Rules:

1. Limited to $50 Put Strikes or less - costing $5000 if assigned
2. When selling a Put, cash balance must cover that months Put if assigned
3. Minimum Cash Balance of $3000 to sell Put options
4. If cash balance > $8000, start selling Puts one strike further in-the-money until cash balance < $8000, i.e. until a Put is assigned
5. If cash balance is negative after assignment of Put, sell covered calls to bring it positive
6. If selling covered calls doesn’t bring cash balance to positive, sell required number of shares held


Month 1

• Starting Cash Balance $3000
• Sell 1 SWK 30 Put with 2 month expiry at $255 whilst SWK trades at $29.81
• Ending cash balance = $3,255

Month 2

• Add $1000 to account. Starting Cash Balance $4,255
• Sell 2 ADBE 20 Puts with 2 month expiry at $192 each whilst ADBE trades at $19.54
• Ending cash balance = $4,639

Month 3

• Add $1000 to account. Starting Cash Balance $5,639
• If SWK > $30, sell 1 MMM 45 Put with 2 month expiry at $215 whilst MMM trades at $47.07. Ending cash balance $5,854
• If SWK < $30, buy 100 SWK at $3000 and sell no Put options. Ending cash balance $2,834

Assuming we are in an extended bear market, I’d be forced to buy an additional lot of shares (or two additional lots if I'm using three month expiries):

Month 4

• Add $1000 to account. Starting Cash Balance $3,834
• ADBE is less than $20, buy 200 ADBE at $4,000
• To come up with the additional $166, sell 1 SWK 30 Covered Call with 2 month expiry at $330
• Ending cash balance = $164;
• Add $1000 per month to account until balance exceeds $3,000. Then start at beginning

Idu

SWK is?

Stanley Works is the only name that comes up when I google it

marathonic

Idu wrote: »

SWK is?

Stanley Works is the only name that comes up when I google it

Yeah, that's correct. It's one of my current holdings.

elrap

I would like to trade options on NYSE/Nasdaq.
Can anyone suggest an on-line discount broker that I can use?