Let’s say I want to own 100 shares of X company trading at 100$ and I have to cash to purchase 100 shares at 100$.
Would it make sense to sell a naked put option with strike of 100$ expiring weekly.
Scenario I can think of:
- Price goes above 100$ EOW
- Price goes below 100$ EOW
- Price stays 100$ EOW
Scenario 1.
Can have 2 situations
1. Price goes above strike plus premium.
2. Price goes above strike but less than premium
In situation 1 I lose out on potential gains if I owned shares at 100$
In situation 2 I gain the premium plus strike minus current price of stock.
I will not own any shares EOW and I come out with profit!
Scenario 2.
2 situations
1. Price goes below strike minus premium
2. Price goes below strike but not minus premium
In situation 1 I will get exercised and have cost basis of strike minus premium and fees right? And so I’ll be holding the shares like I want but from strike instead of market price.
I come out at a loss here and shares EOW.
In situation 2 I will get exercised but my premium received will be greater than the loss I have per share from strike price.
So I come out with a smaller profit than scenario 1 and shares EOW.
Scenario 3.
I make the premium and get exercised. Basically scenario 2 situation 2 right? Minus fees.
Am I missing anything important here?
I see 5 outcomes and only 1 outcome at a loss and 1 outcome with missed gains.
And since I already want to own shares I don’t really see being exercised as too bad unless the shares tanked so much in 1 week that changes my thesis on the company.
Should one do this on a weekly basis and collect premium instead of buying the shares?
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