About

I started this blog to show how long-term profits can be achieved with a simple options strategy.

The strategy works as follows: I sell a put on a stock or ETF, so I go short. On the expiration date of the put, I simply do nothing. If the option expires “Out of the Money,” I collect the premium. The following Monday, I sell a new put option. If the put is “In the Money” at expiration, I again do nothing and wait until the next Monday. At this point, I should have received the stock at the strike price of the put option and see it in my portfolio.

I then sell a call option, which means I have a so-called “covered call,” and I again wait until the option expires. If the stock price is below the strike price on expiration day, the call expires worthless, and I collect the premium. If the stock price is above the strike price on expiration day, the call is exercised, and the stock is sold at the strike price. Again, I receive the premium.

Advantages of this strategy:

Regular premium income:

By selling both puts and covered calls, you can continuously collect premiums, which increases your cash flow, regardless of whether the options are exercised or not.

Market-neutral approach:

By selling puts, you position yourself to either collect the premium or buy stocks at a lower price if they fall below the strike price. The covered call strategy on the received shares reduces risk since you still receive premiums even if the market moves sideways or slightly down.

Risk management:

Selling puts forces you to buy stocks that you would like to own anyway (at a lower price). Once you own the stocks, the covered call partially protects against price declines.

Potential risks and considerations:

Limited profit:

Both when selling puts and writing covered calls, your profit is limited to the received premium. With covered calls, you give up potential upside if the stock price rises sharply (as you must sell the stock at the strike price).

Downside risk:

When selling puts, there is significant downside risk, especially if the stock price drops sharply. You need to be prepared to hold these positions during challenging market phases or to buy stocks that have significantly decreased in price.

Capital commitment:

To sell put options, you need to have enough capital or margin available to buy the stock if the option is exercised. This can limit your liquidity.

Active management:

This strategy requires regular monitoring and a disciplined approach to take the next action at expiration dates.

Conclusion:

The strategy is viable in the long run, particularly for building a stable stream of premium income. It works especially well in sideways or slightly upward-trending markets. It is important to carefully select stocks or ETFs that you would be willing to hold long-term in case of exercise. Understanding risk management and potential drawdowns in bear markets should not be underestimated.