For many high net worth individuals with Private Banking relationships, they often invest in products such as Fixed Coupon Notes and Equity Linked Notes, which essentially is being an stock option seller.
I would think of this strategy as a complement to your broader portfolio, as it works effectively only in certain market environments, for example when implied stock volatilities is high (and relatively higher than the eventual realized stock volatility).
Using the VIX Index for example (as a proxy for US stock market volatility), the historical average has been about 20. So in our current environment, with VIX slightly above that level, selling stock options to generate income might work quite well.
However, when the VIX drops to the low teens for a prolonged period of time, you will find it difficult to generate the same level of income, all else equal.
As options are traded on margin, what is most important is not to overleverage. Always be aware of what your overall market exposure is, i.e. the total dollar amount of shares you would be obliged to purchase, if the market tanks and all the put options end up being exercised.
For many high net worth individuals with Private Banking relationships, they often invest in products such as Fixed Coupon Notes and Equity Linked Notes, which essentially is being an stock option seller.
I would think of this strategy as a complement to your broader portfolio, as it works effectively only in certain market environments, for example when implied stock volatilities is high (and relatively higher than the eventual realized stock volatility).
Using the VIX Index for example (as a proxy for US stock market volatility), the historical average has been about 20. So in our current environment, with VIX slightly above that level, selling stock options to generate income might work quite well.
However, when the VIX drops to the low teens for a prolonged period of time, you will find it difficult to generate the same level of income, all else equal.
As options are traded on margin, what is most important is not to overleverage. Always be aware of what your overall market exposure is, i.e. the total dollar amount of shares you would be obliged to purchase, if the market tanks and all the put options end up being exercised.