There are a few reasons why I am selling naked puts in my own portfolio at this time. I just believe that this is a great time for doing it, properly anyway. And here is why.
1. Stocks are undervalued. The market has crashed so far in 2008 that nearly every stock that is left is undervalued. Now I’m not saying all stocks today are good buys, and I’m not even saying that the market will not fall lower, but there are a lot of strong companies and ETFs out there trading for half of what they should be from a fundamental standpoint.
2. I don’t mind holding some stocks for the long term. All and all I am a short term trader, but I do not mind holding a few fundamentally strong companies and waiting for them to go back up. It is the investor picking market right now and I’m going to get my share.
3. It helps protect me from a further drop in the market to an extent. I don’t know how low the market will go so by selling out of the money puts I am protecting myself from a drop, at least more so then if I just bought the stock. I protect myself in 2 ways, by selling OTM the stock needs to drop a little before I get into it, and I make a premium which lowers the cost I need to “break Even”.
4. I am okay not getting in and just making a monthly income. Right now stocks are just going back and forth between small channels. As long as they do my puts will just expire worthless and I make a monthly income. No problem with that.
5. And the most important is I am position sized so that if I get called into all of my positions I will not run out of money to buy the stocks. In fact I’ll have money left over to trade with when the markets start trending again.
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When I was young I wanted to learn how to trade the stock market. So I traveled around the country listening to professional traders talk about how they are making money in the market. Now I understand how easy it is to make money in the stock market and started a site stocks-simplified.com to help others learn.