ETFs vs individual stocks #2.

I looked at a blog for the first time today & liked the post on covered calls versus DOW 30 stocks.  (Blue Collar Investor - covered calls, DJIA).  I even added BCI to my blog's reading list.  In my IRA, I sell the monthly cash secured puts against broad based ETFs to help me buy, & then, after assignment to buy the ETF, I sell the monthly covered calls to help me to sell it.  I've considered using individual stocks, & even reviewed the BCI post's idea at today's market close.  I did the arithmetic with DIA ($248.70), the ETF that invests in the DJIA's 30 stocks, & with WMT ($102.42) - Walmart - one of the DJIA's stocks.  To maintain apples to apples, both equities have a current dividend yield of about 2.1%; & I selected the 11/16/18 puts & calls that were about 2.5% out of the money.  I calculated what I call the premium yield - for puts, I divide the premium's BID by the strike price (the amount of cash reserved); for calls, I divide the premium's BID by the equity's market value.  Using the time until expiration - 17 days - I annualized the premium yield.  For selling puts, DIA's annualized premium yield was 25%, WMT's was 39%.  For selling calls, DIA's was 18%, WMT's was 36%.  I'm sure I'll re-visit the individual stock idea for my IRA, but how do you feel about covered calls (cash secured puts) versus ETFs?

Covered call premiums to complement the dividend.

Did you ever hear an investor saying, "although my stock is getting beat up, at least I'm being paid its dividend as I hold it, waiting for it to recover?" I'm applying that rationale to my recent IRA investment in SPY, the ETF that holds the stocks of the S&P 500.  Via a put assignment on 10/19/18, I paid $288.05 a share (strike price minus the sold put's premium).  SPY closed today at $263.69.  When I sold the put, I knew that SPY was high, but I try not to guess its direction.  I just want to own it, because I need equity allocation.  And I'm not going to sell it at this low price.  At least I'm being paid its dividend as I hold it, waiting for it to recover.  Its dividend's current yield is around 1.9%, which amounts to about $5 a year, or 42 cents a month (it pays quarterly).  To be honest, the dividend is hardly great consolation versus my nearly $25 loss.  But, applying my consistent option selling strategy, I've also sold covered calls against my SPY since 10/19/18.  On 10/22/18, with SPY already down to $275.26, I sold the 11/16/18, $280.50 call & received a $2.33 premium.  As the October debacle continued, with SPY trading at $264.97 today, I applied a covered call roll strategy to my SPY position.  I like calling it a repair strategy, & more appropriately so.  I was able to buy back the 11/16/18, $280.50 call (which I sold on 10/22/18 for $2.33) for a $0.51 premium & I immediately sold the 11/16/18, $273.50 call for a $1.93 premium.  I earned a $1.42 premium credit with my SPY repair strategy.  In covered call premiums, I've garnered $3.75, which is 1.3% of my $288.05 net cost for SPY.  If I don't earn any more covered call premiums on my SPY through 11/16/18, my annualized premium yield is over 15% (1.3% X 12 months).  That's a nice complement to the SPY dividend's 1.9% current yield!  (Suppose SPY exceeds $273.50 in advance of the 11/16/18 close; any ideas?)                          

Flexibility, creativity with covered calls: roll strategy as a hedge

In my IRA's option selling strategy, I use TLT, an ETF that holds long term US Treasurys, to provide a 35% fixed income allocation.  On 9/25/18, I was short the TLT, October 19, 2018, $120 (covered) call.  TLT was at $116.54.  I could have maintained the short $120 call, & continued hoping that TLT would approach $120 by 10/19/18.  The 10 year Treasury was yielding 3.10%, but I can't predict its future.  I chose a roll strategy, which I prefer calling a repair strategy.  I bought back the October 19, 2018, $120 call, for a 15 cent premium.  I then immediately sold the October 19, 2018, $117 call, for an 87 cent premium.  I netted a 72 cent credit for my IRA.  Considering the 24 days that remained until expiration, the $0.72 divided by $116.54 provided what I call a 9.4% annualized premium yield.  On option expiration Friday, 10/19/18, the 10 year Treasury yielded 3.20%, TLT closed at $113.71 & my $117 call expired worthless; no assignment to sell my TLT.  Had I simply maintained my short $120 call, I would have lost 2.21% ($116.54 - $113.71 + a 26 cent dividend received on 10/5/18 = $2.57 loss/$116.54).  With the repair strategy, I created a hedge to combat the falling TLT (& rising Treasury yield), & lost only 1.59% ($116.54 - $113.71 + the same 26 cent div + the 72 cent premium credit = only $1.85 loss/$116.54)!                 

Selling puts against ETFs versus stocks?

I read a good post on a blog that I enjoy - tastytrade, stocks versus ETFs - about trading options using ETFs versus single stocks.  Author Sage Anderson emphasized the different volatility & of course, the different risk.  In my IRA, I sell puts against SPY, the ETF that holds the stocks of the S&P 500 index.  But I've often considered selling puts against individual stocks, to get more of what I call premium yield.  I'm bullish on oil, so XOM (Exxon Mobil, in the S&P 500's top 10) is a stock to consider for selling puts against.  Around yesterday's trading close, I reviewed the November 16, 2018, SPY & XOM puts.  SPY was at $280.42 & XOM was at $81.32.  Unlike Anderson, I don't look at the volatility index.  But I do look at arithmetic because for me, it really quantifies the risk.  I chose the SPY $276 put & the XOM $80 put because they were both about 1.6% out of the money.  Since I'm a put seller, I consider the premium's BID price - $3.01 for SPY & $1.60 for XOM - when I calculate premium yield.  Selling cash secured puts, I must reserve $276 (per contract share) for SPY & $80 for XOM in my IRA's core position.  For selling the SPY put, $3.01 divided by $276 = 1.09% over 30 days, or 13.27% annualized.  For selling the XOM put, $1.60/$80 = 2.00%; 24.33% annualized.  The 24.33% premium yield is very attractive, but I'm afraid of XOM's put selling risk - dropping to $40, or to $0!  SPY's 13.27% premium yield is quite attractive, but I'm not afraid that SPY will tank to $138, or to $0!