I have tried my hands in selling bear call credit spreads/ bull put credit spreads in the US market before to earn some premium income using time decay but the decrease in the value of the US dollar often reduces or negates the return. The occasional big moves which results in the prices moving out of the strike prices really sucks. This strategy indeed sucks. A classic example of low probability of losing but big consequence when one loses. I condemn it.
Having said that, Warren Buffet has been known to sell options for the premium too.
(Taken from his 2008 letter to shareholders.)But what is suitable for him may not be suitable for a small fry like me.
Another thing i contemplated was to own US shares so as to be able to sell call options and earning additional income, on top of the usual dividends and capital appreciation. But alas, damn it, im a small fry which means i am not able to own enough of the shares to earn any meaning income using this strategy and again the reduction in US dollar makes things more sucky. In addition, now, i have to pay custodian fees which again makes things worse.
It came as a pleasant surprise that SGX is eyeing single-stock options within 2 years. This reduces the currency risk and complements my boring strategy of holding dividend-yielding stocks, as now i can earn additional income. I think its good for retail investors also as it, to a small extent, helps people reduce their human instinct of selling when low and buying when high because with this strategy, people would only sell when the higher strike price is reached. Even if it is not reached, one still earns some income. Either way, one is better off.
With this initiative, my returns from stocks are from:
- Capital appreciation
- Lending fees - some of my shares have been borrowed for people to short
- Selling call options ( based on new initiative, hopefully)
On a side note, many of my shares which people use to short have been returned. Theoretically, this implies that the stock market should see a rally, especially when it coincides with the much publicised year-end or christmas rally. Would i use this knowledge to speculate and trade on shares then?
Nope. I still miss the good old days of 2008 when i entered the market with vengence and without a single uncertainty in my mind. I do not feel it now and anything i do, has doubt. As someone said, if you dont know what to do, just do nothing. Doing nothing is also a strategy.