So, my take on your statments are choose an underlying stock and adjust the option play to eliminate the spreads based on your expectation of the stock move? That will add the "local" knowledge and eliminate the possibility of choosing the wrong underlying stock?
Most of my examples were academic for illustrating a point about options. In the real world, I don't try to eliminate choosing the wrong stock. I pick stocks just like anyone else. I try to pick good value play stocks that I want to own, and I use options to get into a position with them. I generally use a dollar cost average approach by monthly writing puts until I have the number of shares I desire to have for that stock. By writing puts I am doing better than dollar cost averaging would have done alone on the purchase side, although by doing this I'm eliminating some potential gain from short term upwards spikes. Sometimes I'll use the proceeds for call buying if I think a quick runup is likely, and sometimes I save the cash to allow writing more puts for the next month. I don't just apply this strategy in a dumb way. I look at momentum and sentiment of the stock to pick when to do what.
Are all your investments, options?
No way!!! I don't have the time or energy to do my entire portfolio this way, although I could just use QQQs or something similar. I have considered that instead of individual stocks, but I kind of like the stock picking part of it.
I have to split myself in two. I have a large portion of my worth that is managed in a 401(k) and IRAs. I'll accept an 8% tax sheltered average return there (still hasn't recovered from the last few years). This is all funds. This is my safe haven I can fall back on in case something goes horribly wrong. It isn't enough to retire on, but that is mainly because I am not of the retirement age yet. Many years back I decided I wanted my own account to manage. It started off small, but has grown much quicker than the 401(k) and IRAs even after paying all those taxes. I know I am doing better than average based on this alone. The thing is I didn't use just one strategy to get there, so it is hard to nail down exactly how I did it. I have made money on average buying stocks straight, writing puts, buying puts, writing calls, and even buying calls. Maybe I was just lucky or I have an eye for value stocks, but I think it has to do a lot with paying attention and having some good strategies. I would love to be able to know what I could have done just using put writes with a stop loss strategy and an exit strategy.
If I was retired, I would probably get more conservative and stick strictly to way out of the money put writing, similar to Elmer's strategy.
HailMary
