Comments on: Writing Puts Instead of Buying A Stock http://wheredoesallmymoneygo.com/writing-puts-instead-of-buying-a-stock/ A personal finance blog written by Preet Banerjee Sat, 11 Feb 2012 16:22:10 +0000 hourly 1 http://wordpress.org/?v=3.1.2 By: Write a Put, Buy a Put : WhereDoesAllMyMoneyGo.com http://wheredoesallmymoneygo.com/writing-puts-instead-of-buying-a-stock/#comment-2951 Write a Put, Buy a Put : WhereDoesAllMyMoneyGo.com Wed, 25 Feb 2009 03:53:48 +0000 http://www.wheredoesallmymoneygo.com/?p=1021#comment-2951 [...] week, I discussed writing puts as an alternative way to accumulate stock. To re-cap, writing a put option means you are selling someone else the option of selling a stock to [...] [...] week, I discussed writing puts as an alternative way to accumulate stock. To re-cap, writing a put option means you are selling someone else the option of selling a stock to [...]

]]> By: Cash Canuck http://wheredoesallmymoneygo.com/writing-puts-instead-of-buying-a-stock/#comment-2950 Cash Canuck Mon, 23 Feb 2009 05:32:25 +0000 http://www.wheredoesallmymoneygo.com/?p=1021#comment-2950 I think an equivalent index mutual fund would be appropriate. Something like TD e-series funds (up to 0.5% MER). iShares CDN equity comes in at 0.25%. I think the difference in MER would be made up for by saving the trading commissions. Caveat, as you increase the dollar amount invested, this situation shifts in favour of ETFs. Furthermore, holding a mutual fund as opposed to a market-traded security discourages more frequent trading. With a mutual fund there are no bid-ask spreads and none of the behind-the-scenes arbitrage that come with ETFs. Woo! How's that for off-topic? Aren't we supposed to talk about options? I love this type of discussion, though. Great blog! I think an equivalent index mutual fund would be appropriate. Something like TD e-series funds (up to 0.5% MER). iShares CDN equity comes in at 0.25%. I think the difference in MER would be made up for by saving the trading commissions. Caveat, as you increase the dollar amount invested, this situation shifts in favour of ETFs. Furthermore, holding a mutual fund as opposed to a market-traded security discourages more frequent trading. With a mutual fund there are no bid-ask spreads and none of the behind-the-scenes arbitrage that come with ETFs.

Woo! How’s that for off-topic? Aren’t we supposed to talk about options? I love this type of discussion, though. Great blog!

]]> By: Preet http://wheredoesallmymoneygo.com/writing-puts-instead-of-buying-a-stock/#comment-2949 Preet Mon, 23 Feb 2009 02:25:36 +0000 http://www.wheredoesallmymoneygo.com/?p=1021#comment-2949 @Cash Canuck - an ETF is not a derivative, but your point is well taken with respect to premiums and discounts of thinly traded ETFs. I'm curious though, as to what you recommend for the average DIY investor if not ETFs? @Cash Canuck – an ETF is not a derivative, but your point is well taken with respect to premiums and discounts of thinly traded ETFs. I’m curious though, as to what you recommend for the average DIY investor if not ETFs?

]]> By: Cash Canuck http://wheredoesallmymoneygo.com/writing-puts-instead-of-buying-a-stock/#comment-2948 Cash Canuck Mon, 23 Feb 2009 01:31:19 +0000 http://www.wheredoesallmymoneygo.com/?p=1021#comment-2948 Writing puts on an ETF. Interesting. Doesn't this amount to a derivative of a derivative? I'm leery of ETFs in the first place. I don't think their advantages (market pricing, low MERs) outweigh the disadvantages (trading commissions) for the average DIY investor. Also for thinly traded ETFs, a sizable spread can develop between the market price of the ETF and the NAV. Writing puts on an ETF. Interesting. Doesn’t this amount to a derivative of a derivative? I’m leery of ETFs in the first place. I don’t think their advantages (market pricing, low MERs) outweigh the disadvantages (trading commissions) for the average DIY investor.

Also for thinly traded ETFs, a sizable spread can develop between the market price of the ETF and the NAV.

]]> By: Preet http://wheredoesallmymoneygo.com/writing-puts-instead-of-buying-a-stock/#comment-2947 Preet Sun, 22 Feb 2009 16:10:23 +0000 http://www.wheredoesallmymoneygo.com/?p=1021#comment-2947 @ Deb: Yes you can. There are about 10 canadian listed ETFs you can purchase options on, but you want to make a note of the liquidity of each. For example, the market for HXU and HXD options are thin, but XIU is more healthy - but not as good as US listed ETFs. @ Deb: Yes you can. There are about 10 canadian listed ETFs you can purchase options on, but you want to make a note of the liquidity of each. For example, the market for HXU and HXD options are thin, but XIU is more healthy – but not as good as US listed ETFs.

]]> By: Deb http://wheredoesallmymoneygo.com/writing-puts-instead-of-buying-a-stock/#comment-2946 Deb Sat, 21 Feb 2009 04:35:10 +0000 http://www.wheredoesallmymoneygo.com/?p=1021#comment-2946 Can you buy and sell options on ETFs, for example XIU? Thanks. Can you buy and sell options on ETFs, for example XIU? Thanks.

]]> By: Forex Analysis http://wheredoesallmymoneygo.com/writing-puts-instead-of-buying-a-stock/#comment-2945 Forex Analysis Sun, 15 Feb 2009 12:02:24 +0000 http://www.wheredoesallmymoneygo.com/?p=1021#comment-2945 I agree, but really the most important thing is experience with both. I agree, but really the most important thing is experience with both.

]]> By: Patrick http://wheredoesallmymoneygo.com/writing-puts-instead-of-buying-a-stock/#comment-2944 Patrick Sat, 14 Feb 2009 21:36:29 +0000 http://www.wheredoesallmymoneygo.com/?p=1021#comment-2944 @Preet - Ok ok, so I only just learned what a DITM call was a few days ago in a book, and I said it to try to sound smart. Thanks for ruining the illusion. :-) What do you think of buying a stock vs. writing DITM puts? @Preet – Ok ok, so I only just learned what a DITM call was a few days ago in a book, and I said it to try to sound smart. Thanks for ruining the illusion. :-)

What do you think of buying a stock vs. writing DITM puts?

]]> By: Preet http://wheredoesallmymoneygo.com/writing-puts-instead-of-buying-a-stock/#comment-2943 Preet Sat, 14 Feb 2009 17:10:52 +0000 http://www.wheredoesallmymoneygo.com/?p=1021#comment-2943 @Patrick - I would write deep ITM puts instead of buying deep ITM call options, and I did in fact compare put writing with a limit buy (stink bid). @Patrick – I would write deep ITM puts instead of buying deep ITM call options, and I did in fact compare put writing with a limit buy (stink bid).

]]> By: Patrick http://wheredoesallmymoneygo.com/writing-puts-instead-of-buying-a-stock/#comment-2942 Patrick Sat, 14 Feb 2009 13:40:08 +0000 http://www.wheredoesallmymoneygo.com/?p=1021#comment-2942 In your Disadvantages section, you're comparing put-writing with buying the stock outright, but they're not really comparable, because if you think the stock is worth buying at the present price, you just buy it (or buy deep-in-the-money call options I guess). The better comparison is against a limit buy order. Compared with that, writing puts has pretty much no disadvantages, except that you're forced to buy in lots of 100 shares. In your Disadvantages section, you’re comparing put-writing with buying the stock outright, but they’re not really comparable, because if you think the stock is worth buying at the present price, you just buy it (or buy deep-in-the-money call options I guess).

The better comparison is against a limit buy order. Compared with that, writing puts has pretty much no disadvantages, except that you’re forced to buy in lots of 100 shares.

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