Anyone else like to sell puts to build a position in a name that you like? I have a habit of doing so... being a value guy, I'm a total cheapskate in the markets (not so much in real life tho, as my wife would attest).
Obviously the logic is "if you like something at X, you'd LOVE it at X-Y". Selling puts gives me that potential of getting assigned at a lower basis than where the stock is currently trading
Obviously the stock could never trade below strike prior to and at expiry, in which case I'd just pocket the premium and move on. No one goes broke taking profit
Yes the downsides are obvious, you don't get the upside of owning the underlying if the stock takes off. But again, we can wipe our tears with the premium. And the stock can really tank after you sell the put, so you get assigned, but you wanted to buy there in the first place!
This strategy works best when you're dealing with stocks with high implied vol, and you manage to get a good fill (always use limit orders! never be the idiot that crosses the chasm of the bid/ask spread!). You want that premium to be as juicy as possible
This is good for me because I like to dumpster dive and traffic in some really hated stocks. They tend to have high IV and fat premia. I love getting a good fill on a red day on an OTM put for a stock that I've been eyeing on my watchlist
Favorite situations are OTM puts with premia that yield 10%+ in a month or less on the capital that you'd have to set aside if you got assigned. Awesome IRRs, and recycle to the next idea. Obviously need to actually like the underlying, otherwise very risky thing to do
Will end with a public service announcement. If you engage in this behavior, It's good practice to make sure your short puts are cash-covered. Otherwise you may be forced to cover at an unfortunate point in time at a really terrible level. Those bid/ask spreads can be pesky!
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