·     If the stock slides, the puts will kick in and limit the downside. I like this better than setting a stop and just getting out with a loss. Again, if it’s a stock I want to own, there is no issue keeping it and being patient. If the stock were to drop to $70, again the puts would kick in. I am at risk for the price of the stock as I wrote this ($83.71) and the $75 put, so $8.71. In this scenario, you just “repair” the trade by selling the next couple months of premium. It’s possible to be profitable and never have the stock price get above your purchase price, in this case $83.71, if this were my initial entry. In reality, after a few months of banking premium, you end up owning the stock at a much lower price. My cost basis now for Green Mountain, which I bought at $75, is below $60!

*    On stocks I plan to hold and keep writing and banking call premium month after month, the strategy is to go out 4-5 months, far enough, not too far, and purchase a put at a strike based on market cycle, stock cycle, etc. For example, when GMCR was rocketing up, my basis was $75 and had the $60 puts. As the market gets a little tenuous, I know have the 75 puts, pulling in the risk a little in case of a downside slide. In general, you can “pay” for the put with the first month in a half or two months of premium in most cases. In Green Mountain’s case, the premiums were fat on the first month and I was profitable right off the bat. 

  * If the stock rockets up, then you can buy back the in the money calls and sell the next higher strike. For example, if I sold the $80 calls and Mr. Market now felt good about the world situation, I could buy the $80’s I sold for $6.00 for whatever the higher price is, then offset, or partially offset the increase with the sale of the next strike. What may be lost on the premium will be made up also with the increase in the stock price. This does happen from time to time. You have to look at the bigger picture and the overall value of your account.  

  

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