Options have two important functions:
1) They generate extra commissions and fees for the professionals, like time sharing does for real estate brokers.
2) They turn investors into market timers.
Neither of these characteristics is a benefit to someone who has identified a long term growth trend such as DELL's earnings. It would be better to consider a margin strategy and thereby gain the benefit of margin (either long or short) AND the tax advantage of deducting interest currently WITHOUT the expiration involved in options.
FORTUNA FORTIS JUVAT
selling puts on dell is not a terribly bad idea, but your timing would be seriously questioned. Normally, you would sell puts when the market is near its low; for instance around 7200. When the market is in the position it is currently in you would
like to sell covered calls versus selling naked puts. You are right if the premium is substantial go for it, but do realize that there is still a margin requirement. At this time I would be buying puts on all stocks that have made substantial run. This will be the third consecutive time the market has tried to trade over 8000, but if it breaks through 8200 the market goes higher. Look for weakness.
If your selling a naked put (you own no Dell shares) there is tremendous risk--- because if the stock tanks between now and third Friday of Jan.--- the put buyer will "put" (sell) his shares to you @ $95 per share--- and then he will buy the shares at
the current market price in order to obtain the shares necessary to deliver to you----if the stock has dropped $20 to say $75 you sustain a big loss. Now you own a $75 stock--which you paid $95 for less the option premium you received when you sold the put.
i dont think it's a bad strategy.
i like dell.
also, for short term--it just cut hard through its 50 day moving avg.
however, i am scared that this week all stocks will be on the downside--reacting to last friday's BAD DATA to which there has been no reaction!
weird so far.
I'm a terribly slow on the keyboard and therefore write short questions if I can get awy from it. Minimal knowledge?...not quite.However, I am aconservative options player(is this an oxymoron?).I "play" only a few companies at a time and spend alot of time perusing info , including the threads before I act.
I am just starting that process with DELL. The genesis of my questions is this... why the negativity that I seeing at times here?
It seems that sometimes people feel guilty for reaping the benefit of owning a good position with a successful company such as Dell. So, here it is again: selling Jan puts @ 95 seems like a good deal . The premium is good with little downside risk. So what if I get them "put" to me . I've owned worst stocks than DELL at 95 ! I'd be interested to read other opinions ..esp. from those who might disagree.
Based on your question..it appears your knowledge of the market is minimal... therefore stay clear of this one--- it's not a good equity to learn on because you can get your clock cleaned before you have time to check Dell's latest qoute!
Am new to this thread and am starting some prelim research DELL options trading . A question ...What are opinions re. selling puts . Is a drop anticipated soon ? Are earnings really expected to be so bad as to "crater" the stock?