Market in general is bullish on stocks like Nvidia, Apple, AVGO. I am interested in selling covered Puts or covered calls on the stock far away from strike price. For example, Buy $110Put and Sell $115 put for net credit of 100$ on AVGO for example and max loss limited to 400$ for Exp or June 2025.
That’s 20% ROI. Even with market downturn like Carry trade tantrum 3 weeks ago, chances are AVGO will not go below $120. Does such a trade makes sense? I understand that theta decay (good for me) will be really low for first 9 months and only in last 3 months I start getting real returns. Main benefit I see is that I don’t have to monitor such positions day to day or week 2 week.
If I want to invest 10k in similar positions, I am planning to push 4-5k now and rest in next few months if AVGO falls further.
Any comments/suggestions like I can go for $10 or $20 spread instead of $5?
Selling covered Puts Long term
byu/Affectionate-Job-658 inoptions
Posted by Affectionate-Job-658
3 Comments
To sell a $115 put with most brokerages you need $11,500 in your account at least in the form of a money market fund. You can lose a max of $400. I’m not sure where you get an ROI of 20%.
While a bullish market and AVGO’s strength are tempting, relying solely on market direction for such long-dated options can be risky. A lot can change in 2 years. Consider these factors:
* **Opportunity Cost:** Tying up capital for 2 years at that return, even if it seems probable now, might not be the most efficient use of your funds.
* **Black Swan Events:** Unforeseen market crashes can happen (COVID, anyone?).
* **Theta Decay:** While in your favor, it’s slow at the beginning. You’re essentially betting on AVGO staying above your strikes for a long time.
Instead of going further out in time, maybe explore slightly wider spreads on shorter expirations. You could also look at [selling cash-secured puts](https://www.investopedia.com/terms/c/cashsecuredput.asp) which would provide some income while you wait for a dip to buy AVGO.
You are describing a put credit spread, also known as a bull credit spread. You are not describing a covered put. A covered put would be short the underlying stock plus short the out of the money put. Credit spreads are high probability trades and a good way to trade options to generate income in a bull market.