Ok, lots to unpack here. First, options trading is a bit like gardening. To get the best results, you need to check in and adjust from time to time. Yes, you can ignore things for hours/days, but when the conditions turn bad (freezing rain/snow, scorching solar), you need to take action to protect what you are trying to grow. If you cannot follow the stock, then a hands off process is a bit different, but still possible. Many here have spent countless hundreds of hours learning, and still call themselves “newbies.”
So, if I understand your situation correctly, you just sold 2000 shares at $104 and now you have $208,000 cash in your brokerage account. Going forward, you can do many things. If you decide to SELL cash-secured puts (CSP), this means that you are selling the right for someone else to PUT you the shares at a specific strike price. For this right, you are given a premium (which the buyer pays to you). In addition, your brokerage keeps enough cash “secured” or locked away (in case you’re forced to buy the shares) until the contract closes (either you have been PUT the shares at the strike price or the contract expires worthless). This is options 101 and if you don’t understand, then you need to go back to Wikipedia, options alpha, 1st post etc. This is all a non-margin account. If you’re trading options on margin and you don’t understand, well, just stop and get out now before you do something stupid. Otherwise, proceed with caution.
So, with that $208K, you can SELL 20x $104 strike puts (CSPs) for about $1.65/share this week for $3360 premium ($1.65 x 2000). If the SP ends the week above $104, then you keep the $3360 and the $208k is “released” and available to sell again next week. If SP is below $104, no matter how low, well the shares are put to you (usually Saturday or Sunday) at $104, plus you still keep the $3360. That’s the simple part. Now, you can always buyback the contract for a gain or loss before Friday if you want. Also, you can raise the strike price closer to “at the money” ATM and get more premium, but at more risk of assignment (plus you still need enough cash to secure the puts). To sell 20x CSPs at $115, you need $230k.
If you keep this up every week, “winning” ( the SP always finishes above the strike price), then you continue to collect that premium. Adding that up each week, and you might add 52x$1.65=$85/share or x 20 contracts x 100 shares/contract = $170k, added to you initial $208k = $378k. Everything is still cash, no shares, if the puts always expire worthless ( SP above strike price). So, $378/2000sh = $189/sh, or it’s like making money if the SP is BELOW $189 on 12/31/23, or losing money if SP is above $189.
Unfortunately, we can’t know whether the SP will be $120, $150, $180, $300, or $500 on 12/31/23, so it’s uncertain what method will work better than holding stock: buying options, selling options, or not even playing the game. In 2022, we would have all been better just selling on Jan 3rd, putting the cash in the bank, and vacationing in Aruba. Personally, I spent a lot of time an energy to ONLY lose 50% of my account dollar value, instead of the 75% loss in TSLA stock price. However, I hope 2023 is better because with my options premiums I’ve added 1000 shares, unfortunately many of them were purchased in the $200s and $300s, yet are only worth $114 today.
So, is this the method for you? I don’t know, but it’s working for me, but it’s a bit more work than just putting the money in an account and walking away. The premium divided by the strike is the weekly return: $1.65/$104 = 0.0158 = 1.6%. That’s not bad in my book. Even 1% per week compounded is more than 50%/year, better than any return I’ve ever received, even in a stock market mutual fund.
Can you do this with minimum time? Yes, you can sell CSPs once a week and just let them go. For the highest returns, you try to sell CSPs at the bottom of a SP drop, often around 07:00-07:45 AM Pacific time. Any day works, but Thursdays seem to be pretty good on average. For example, last Thursday the low was $107 at 07:45, and selling $104 strike CSPs for 1/13 would have been a great premium. Yesterday, Friday at 06:38 would have been even better, but then how was anyone to know?
