Selling calls versus selling puts. I quit selling puts several months ago. Here is my thinking about the issue, perhaps you can clear my fallacy if such exists.
A covered call play of mine generally has the following characteristics:
1. Provides for additional upside in share price.
2. Contract price nets at least 1.5-2X dividend equivalents per six months.
3. Can be easily closed to move to cash if the market is dropping.
4.Call contract price immediately decreases cost of the play.
5.Amount of cash in play generates double cash flow, from dividend and call contract price.
6. Biggest risk is loss of potential upside.
Characteristics of a put:
1. Provides potential favorable entry versus current price.
2. While in play, only gives cash flow from the contract price, yet almost as much cash is occupied as being long, with no resulting dividends.
3. Can't easily be closed, without a large loss, when the share price moves the wrong direction.
3. Risk is from strike price to zero, less contract price.
I'm still looking at some way to play puts, but in general they seem less attractive to me, than finding a go nowhere higher yielding stock like PBI for example or a big pharma company. There the CC play gives a significant return with very little uncontrolled downside. With puts, when the share price drops, contract prices soar very quickly, making me feel far less in control of the play. Plus there is nothing on the put side of the play that compares to the extra cash flow that comes via the dividend on long shares.
I recently lost my SDRL @$35. Perhaps selling $35 puts on the recent price dip to around $36 would have been a sensible move. That would allow a chance to re-enter at net price well below my previous strike, but would also give a consolation price if not exercised. If repeated several times before actually getting exercised, the net cost could be well down from the $35 level. The other side of the coin won out during that recent decision. Instead found a new long candidate, and bought that with the idea of selling calls on the bounce. So for now, SDRL is on the back burner, waiting on the price to come back into my buy range.
Thoughts? What am I missing on this?