What's your put writing strategy/limit?

FirefighterB said: "Okay, so I'm getting into the world of put mid-longer term writing and I am curious as to what your strategies are on keeping "limits" on it and what you do with your money while it "sits" there. What are your % of total capital limits? For example: Say I have 10k and want write some puts on BAC, as well as a few other companies. I'd like to write May 08 32.5s. Now, how many would you write if you had if we take the numbers in this example? Would you stick with 1 or 2 contracts, as this would be affordable if you got exercised and would allow you to diversify with writing some for another company? Or, do you write 5 or 10 (or more) contracts and just try to stay on top of the investment, closing the position if it appears you will might get exercised? The reason I ask is because my platform only removes about $300 of my buying power to write one contract and I'm leaving the rest of the money just sitting there, "just in case." It doesn't make much sense to have it there earning little interest, so what do you do with your money while it is waiting? Thanks in advance."

JCast3 said: "writing naked puts works like anyting else, they have margin requirements, and as long as you maintain the requirement, you'll be fine, so you can invest the cash, just know that you might actually need it if ...."

FirefighterB said: "Do you keep a ratio of puts to available cash? Would you invest only what you can afford to buy on cash and margin, or do you invest more and just close the contracts if you're in trouble? E.G. Say you have the 10 grand above. Would you only write 4 C Mar 25 contracts, since that would be all you could afford with your 10 grand if you are exercised? Or, would you write more contracts, say (arbitrarily) 10?"

JCast3 said: "for me it depends, each investment is different, but i'm an absolute bankroll knit....i hate over extending myself, and if i do, its for very very short periods of time.... i'd say if youve never dealt with options before, start very slow, make sure you have the money to back up your contracts just in case shit happens....pay attention to your strikes and set stop losses....options can get REAL swingy, especially considering the volatility we've seen lately....time decay is key, learn it, and use it to you're advantage.... glad to see your expanding your strategy, good luck :th_dblthumb2:"

FirefighterB said: "Thanks, J. That's my concern, too. I don't want to overextend myself, but I also don't want to play it too timid and be missing the "idea" of it. Put writing (and covered call writing, if your put is exercised) seems like a really great strategy and I've talked some of it over with a regular customer we have in. However, we haven't gotten into specifics, as I do not know him that well and don't feel like asking a customer his financial status. I like that it kinda takes the emotion out of trading. Sure, you might miss out on big moves, but it seems to be a slow, steady way to go about buying stocks you like; paid and for a discount to boot!"

JCast3 said: "simple options strategies are great so long as your not an action junky....they are boring, but once you build up your capital, and you can put a bunch on at the same time, they become a little more fun.... i personally love covered calls if i happen to own a stock that has made some decent gains and wouldnt mind selling....otherwise, i just stick to diagonals, same basic premise as covered calls, just fronting less capital.... i believe there are some pretty good articles on investopedia.com on getting started with basic options strategies...."

lil dickie said: "Being an "action junkie" sounds scary these days"

Paq13 said: "also, don't forget, if you don't want t worry about being exercised, then buy a put 1 or 2 strikes under the put you sold to create a vertical. Generally cheaper, less premium bc you'r eusing part of your sold premium to buy the other put, but it's a great strategy when you don't wanna use mucho margin. That way..say something like WCG happens overnight..you won't be exercised the stock with an insane loss."