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Hi ERN,
What are your opinions on the article here:
https://seekingalpha.com/article/4210320-selling-puts-good-bad-and-ugly
The author proposes an extrinsic capture strategy of consistently selling puts ATM or very slightly ITM. Accepting the put will go ITM approximately correct 50% of the time, the proposal is to "hold the strike", re-capture the lost intrinsic, continue to attempt to capture extrinsic until the market recovers.
Seems like a fine strategy to start for bull / sideways markets but we'd still be selling 3580 puts today, capturing very limited extrinsic (to be fair, author has a follow-up with some tweaks here: https://seekingalpha.com/article/4212622-selling-puts-options-on-options).
What do you think?
I'd never endorse the "hold the strike" approach because it might take years to get back to the highest strike. You'll then have a 100% equity portfolio all through the bear market and the first part of the bull market. I'd rather be whipsawed occasionally.
See this post: https://earlyretirementnow.com/2020/06/10/passive-income-through-option-writing-part-4/ (section "Why not just keep selling puts at the last strike at which you lost money?")
I'd like to keep a constant Delta and the "hold the strike" is the opposite of that.
Thank you (and apologies for not connecting Part4 before my question)! So, take your lump, maintain constant delta, continue systematically.
I should do the research, there may be an argument for a "1, 2 or 3 strike roll, and you're out" compromise since the reward of "holding" through the whipsaw is so beneficial (keeping all of the intrinsic at recovery). There's still some extrinsic to be had if the correction continues and you "hold" . . . but you're definitely playing Gambler's Ruin and, assuming constant leverage, reserving leverage to play this game.