I tested another strategy today. Called the Buy-Write. In this strategy, trader buys a stock and simultaneously sells the options for the stock. If the options expire, trader keeps the premium and stock, else trader keeps the premium and sells the options as strike price. Pretty simple in principle. This post will only be discussing the buy-write strategy.

There are 3 kinds of options for call (and put)

  1. In the money : Options with strike price below the price of stock. As you go deeper into the money, the strike price + premium start to fall below the stock price.
  2. At the money : Options with strike price closest to the stock (+ premium). These options have the highest premium. If you feel the stock will stay below stock price + premium, buy these.
  3. Out of the money : Options with strike price higher than the stock. These are generally cheap and you should only sell these for stocks that you feel you don't want to sell but are moving sideways and you would like some income from these.

On friday, I went a bit aggressive and executed a buy-write with AAPL. This is a volatile stock at the moment because of the iPhone and apple watch release. The time premium was really nice. I got the stock at $101.96 and sold the call options for $101 strike price at $2.50. I have risk coverage till $99.46 for loss and if the option gets called, a profit of $1.54 per stock. This strategy seems good for the stock that you don't expect to crash. In all other scenarios you can make decent money.

To do a buy-write, first, I select a company I would not mind holding forever and one that has dividend yield. Why dividend yield? Just in case I get stuck with the stock, it still generates me money and increases the stake from dividends without me having to buy stock. And then I see what date + strike price will get me most profit per week. I have found that "at the money" options for 2 weeks are the most profitable. I need to see what happens when they are written on mondays. On friday, the option for the saturday 2 weeks out seemed pretty good.