<p>What do you mean by “bookkeeping” ? - I know that I looked about a year ago and I didn’t notice that some of the discount brokerages don’t offer the automated downloads that you can get with the other brokerages. I ended up it wasn’t worth the effort due to the fact that I don’t have much money, so I was just doing a little dabbling. More along the lines of a single contract buy-write on a covered call, so the difference between a .75 and a .15 commission for me is 50 cents, a dollar if I weigh in the cost to close. Hardly worth the effort to change accounts. </p>
<p>But at the time I was shopping I thought to myself, “hmm, I can see that this would be the way to go for people doing a lot of multi-contract trades.” (I can’t even conceive of having enough $ to sell 100 puts on anything, unless it was a penny stock… which I supposed would be a fast way to flush all my money down the drain. )</p>
<p>Well…that 100 put trade is a loser so far…I would have been better off selling 1 contract.
I dont normally sell 100 puts for a net of .02 a contract. I think I just did this once this year. Must have had a mental breakdown. :)</p>
<p>I dont know how well the option accounting for taxes is at options house or how easy it is to figure out profits and losses. </p>
<p>There have been many problems in the industry with option accounting in the past. Schwab calculated incorrectly that I had a loss a couple of years ago. I had to figure out the gains and losses by hand. Took me about 40 hours I think. What a pain! Schwab broke down the trades by execution so if you traded 6 contracts, 2 at a time…that was 3 trades. Makes for more work… adding up more numbers when you do it by hand.</p>
<p>Yeah, it definitely is a headache for taxes --I’ve pretty much decided to limit the trading to my retirement accounts for the future to eliminate needing to worry about that. There are all sorts of nuances about options trading that can get pretty confusing. (Gave me a headache to just think about it). </p>
<p>I actually talked to my broker today about selling puts – they don’t allow it right now (Scottrade) but probably will have that in place by the end of the year because they have had a lot of requests for it – but again, I’d be following the more risk adverse strategy of using that as a way to preserve my cash and generate a little income. (For risk adverse, the advice is to sell puts against a solid, low-volatility, dividend-paying stock you’d be happy to own anyway – if it gets put to you, then collect the dividend and turn around and sell a covered call.) No big bucks that way, but a decent return in a flat market.</p>
<p>I played around with slightly more aggressive trading last year, but when all is said and done the account that is doing the best is the Coverdell I set up for my grandson. I have been depositing $2000 (the max) into it every year since he’s been born - I made some mistakes but I fixed those up and now I just put him into very solid ETFs or “dividend dogs”, along with a flexible dividend reinvestment plan and stop loss orders in place. With any luck there should be just enough money in that account in another 14 years to mess up his eligibility for need-based financial aid, with whatever rules are then in place. ;)</p>
<p>“I actually talked to my broker today about selling puts – they don’t allow it right now (Scottrade) but probably will have that in place by the end of the year because they have had a lot of requests for it – but again, I’d be following the more risk adverse strategy of using that as a way to preserve my cash and generate a little income. (For risk adverse, the advice is to sell puts against a solid, low-volatility, dividend-paying stock you’d be happy to own anyway – if it gets put to you, then collect the dividend and turn around and sell a covered call.) No big bucks that way, but a decent return in a flat market.”</p>
<p>That is kind of what I am doing…</p>
<p>The risk profile of selling puts naked or using covered calls is the same so there is no reason not to allow selling naked puts.</p>
<p>Selling puts and then covered calls when the stock is assigned and in the meantime collecting dividend is also my strategy. If I made good money, ie the option is down to less than .50cent from $18 something. I close the option. My goal is not to own any stock if I can. But if I have to then ok, I get paid a little premium. It has been successful so far but this year the market was anything but up except a few hiccups. I will learn more strategies to cover different scenarios when I retire.</p>
<p>Well, in last year’s market I think buy & hold would have been the best strategy. Or, buy & hold with a fairly tight trailing stop- so you get the gains. </p>
<p>Although I did make a little bit playing around with selling covered calls last year on Herbalife. I bought it at about ~$56 in July, sold it the following March for about $57 – and in the meantime kept selling and rolling short term calls, lots of weeklys, mostly at a $65 strike. Every time Ackman opened his mouth, I made money. It worked well because HLF was bouncing up & down during that time with a pretty consistent support level around $60. When it broke below that, I pulled out… But I would have made about the same if I had simply bought and held, and then sold out when HLF spiked at $81 in January. Probably somewhat more if you factor in the commissions. </p>
<p>It’s so much easier to make money in hindsight. That’s why I am not at all that keen on the idea of backtesting. </p>
<p>Maybe for Herbalife but for other stocks not so good. With mistakes and all, I’m still up much higher than I had anticipated. I learned something about myself and how I reacted and traded, I will definitely sell next time when I see this pattern again.</p>
<p>Sometime my stocks were missing and nobody notified me of anything and then a few days later I saw a notice.
I just knew the stocks were gone from my account.</p>
<p>Typically I’m quickly notified by Schwab when I get assigned but fairly recently, I owned a 10 contract call spread on qqq, was assigned on 3 of the contracts 1 week early and didn’t realize it until 3:00 PM. I wasn’t expecting to be assigned a week early then shortly after that was charged for the dividend on it.</p>
<p>The math on rolling out covered calls is somewhat different depending on whether the money is in a taxable or untaxed account – my HLF share was in an IRA, so I could continue to roll out deep in the money calls, and all the hoopla about HLF kept its volatility and call price high. But you don’t want to mess with in-the-money calls in a taxed account, because of potentially adverse tax consequences – you can end up essentially converting potential long-term gains into short-term gains and pushing up the tax rate. But on the other hand there was always that risk of the bottom falling out of HLF. </p>
<p>There’s a little bit of an irony about making money off of the time value of options on a stock that is allegedly in a company built on a pyramid scheme… but as I’ve noted, I think Ackman has pretty much driven the buzz that keeps the option market so strong, especially with that “there’s no there there” presser he held a month back (I was out by then, but I’ll bet there are a few savvy traders who made a bundle on the dead cat bounce from July 21-22. Which I thought was utterly predictable at the time.</p>
<p>I traded hlf last year and was short some puts.
I was short a lot of puts in tsla. I should have bought a few shares instead. Bigger reward. Less risk just owning the stock sometimes.</p>
<p>I kind of lost the stomach to sell puts in the high flyers. The reward isnt that big and the losses could be Huge!</p>
<p>I Think I will trade spreads instead and limit these potential losses. </p>
<p>I know in the cases of hlf and tsla the stocks didnt crash but I have seen puts explode too many times.</p>
<p>I have mine in a non-IRA account. From what I’ve read there are some problem with do covered calls in IRA account. However, I have no problem paying tax if I made money. Tax is not one issue I’m concerned with when I trade or invest. I think I’ve read similar sentiment from investment pros.
In the past I have had large sum of cash sitting in account paying 0% for a long time, I was too busy with my life to deal with it, so I’m happy to pay tax on any gain.
My IRA account is for pros to invest in case things could go wrong, i.e. I’m being too optimistic.</p>
<p>I don’t think there is any problem with trading options with an IRA account as long as there is cash in the account to cover all transactions – you cannot have a margin account, but as long as there is money in the account to cover any shorts, trading is acceptable. I don’t think that selling covered calls is any more or less risky than actually buying the underlying stock. Obviously it can be mismanaged by poor decisions – but so can buying stocks – and I’ve managed to lose more moneyover the years on bad stock choices than on covered calls. That’s because a covered call is essentially hedge against losses. If the stock goes up, then some potential profits will be lost – but if the stock goes down, then the loss is mitigated by the amount of premiums taken in.</p>
<p>I’m self-employed, by the way, so I’ve never had any sort of retirement fund like a 401K which is set up for me or funded by any outside source – from my perspective, the retirement accounts are just brokerage accounts where I transfer money each year (or not) from whatever other available resources I have. So there are no “pros” managing my IRA. (Historically, back in the days before discount brokerages, I didn’t get any better advice from my brokers when it came to managing investments than I do these days figuring out things on my own. Probably worse, given the potential conflicts of interest involved coupled with group-think influences. I’ve noticed that the “experts” often turn out to be wrong. I’m not saying that I can do better, but my life experience is that I certainly don’t do any worse.)</p>
<p>" I don’t think that selling covered calls is any more or less risky than actually buying the underlying stock"</p>
<p>The risk comes in when you sell more puts or do the covered/write more times than if you just bought the stock.</p>
<p>If you buy the same amount of stock as you do when you buy stock/sell calls…the stock is riskier…You get something for selling the calls…</p>
<p>But traders dont always trade the same amounts when doing different kinds of trades. </p>
<p>When I sold 100 puts of the 35.5 puts in at&t (t) I did not really want to buy 10,000 shares of t at 35.5. The stock was trading around 36.5 when I sold the puts. I figured this out when the stock dropped below 35.5. I didnt really want to buy any t there. Like you mentioned calmom, one thing about trading is you really learn about yourself. Both when you win or lose. I have been doing this since 1981 and I am still learning about myself. :)</p>
<p>I think I only want to own 3,000 shares around 34.5. My breakeven is down to 34.7 so I am getting closer. :)</p>
<p>I was short way more puts than shares I ever wanted to buy in hlf. I dont want to own hlf. :)</p>
<p>But I was specifically referring to covered calls, which by definition means that the person needs to own stock in an amount that is equal to or more than the equivalent number of contracts. If I don’t own XYZ, I can’t sell a “covered” call. In fact, I can’t sell a call at all, except as part of a spread. I’ve dabbled a little bit with spreads, but for me its not really worth the effort. There is a way to set up a diagonal spread to mimic a covered call – you buy a deep in the money LEAPS and then write calls against it. Kind of leverages the dollars a little more… but not really my thing. </p>
<p>If I have 100 shares of XYZ I can write 1 call contract. If I have 200 shares of XYZ, I have a choice – I can write 1 contract, or I can write 2. And so on. </p>
<p>Obviously you can’t buy more stock than you have the money to buy in a tax-sheltered account, because you can’t buy on margin – so in that sense it’s theoretically safer, because I won’t be tempted o do something stupid. (But that’s not a problem for me because I wouldn’t buy on margin anyway)</p>
<p>IRA is a bit restrictive, one has to wait for fund to settle before starting another trade. How easy is it to do a spread if somehow one leg is sold and left you shorting albeit temporarily. That’s why I have my Ira in mutual funds. Trading in non IRA account is less restrictive.</p>
Bigger reward. Less risk just owning the stock sometimes.</p>