Today’s market was crazy and I hope everyone has survived
with some dignity left. I have been
revamping my strategy over the past couple weeks and haven’t been posting as
much. I fortunately got out of my Ford
trade last week to initiate my new trading strategy. As providence would have it, I got out just
in time.
I started to advocate selling covered calls for safe extra income
but after I started learning how to sell cash secured puts and credit spreads,
I no longer feel that covered calls are the best option trade. The problem with covered calls and especially
in a market that has become volatile, is that your money is tied up in a
security that may lose value while you wait for the expiration of the
option. If you sell a cash secured put
you keep your money safe in your account while you wait for expiration.
What happened to Ford today was a confirmation of that
fact. I had initially planned to hold
Ford until the October 18th expiration of one of my covered
calls. After learning about selling cash
secured puts I liquidated my Ford position and started selling a few out of the
money puts on some volatile bio tech stocks.
If I get assigned the shares at the end of expiration I will have bought
the stock at an extreme low which is not a bad situation because the stock will
most likely rebound. If I am able to
wait till expiration then I will keep the entire premium.
This is my new strategy now and I will provide more details
as my trade develops. In the meantime it
is important in this market with its new found volatility, to keep as much cash
as possible and to enter options trades without owning the underlying
stock. Credit spreads are probably the
best plays in this market.
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