- Joined
- 24 May 2013
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i appreciate that options trading won't be everyone's cup of tea, but this sort of situation is precisely where i find them to be very useful, and have done this sort of thing many times over the years myself, though as mentioned above, more sparingly in recent years.
simplest way to do it is sell OTM puts at a strike you're comfortable taking delivery at. 99.9% of the time you get the delta skew on your side (puts generally are more expensive than calls at equivalent delta, a few theories around this, fear being a more powerful emotion than greed is one of them). so you get paid well for the risk you're taking on, and either get to buy it at a discount to the current price, or you pocket the premium and can try again if the conditions are still ripe for it.
just picking one as an example to illustrate (this is not any sort of recommendation), market is showing 0.88/1.22 on the CBA Jul 60 puts as i type this. if you happen to think CBA is a bit pricey now, but 60 sounds like a level you'd like to enter at, you could sell some of those puts. if it's below 60 on Jul 16 (market is implying about a ~20% chance of that happening), then assuming mids (you don't always get mid but in one of the majors like CBA often you do) you get to effectively buy them at 58.95. if not, then you pocket the 1.05 and can try again with a different expiry, collecting another lot of premium.
that's a 1.6% return in 7 weeks (at full cash collateralisation, depending on broker that may not be required) where the worst thing that can happen is being forced to buy CBA at a 10% discount to where they are now. if comfortable with that sort of risk, then selling those puts is a great way to express that view in my opinion.
