Asked by Gabriel Tham

Is this strategy of combining options and ETF investing viable? I am doing ETF investing, buy world index and global bond index ETFs, DCA every few months. Can it work with options selling?

Sell put options of a world index etf (e.g VT vanguard total world etf) and collect premiums while the price drops. If it hits the strike price, say $50, i will be glad to buy and own it. This kills 2 birds with 1 stone it seems because I am ok to buy the index etf at a lower price and i get to collect premiums while waiting.

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  • Jonathan Chia Guangrong
    Jonathan Chia Guangrong, Fund Manager at JCG Fund
    Level 6. Master
    Answered on 07 Feb 2019

    Options selling to gain premiums and the underlying counter is viable as long as you are comfortable with the chosen strike price and your account can support the margins. Do take note that each put option contract equals to one hundred shares of the underlying stock so in your example, you will need to set aside $50*100=$5000 to buy the shares for each option contract.

    Actually since you already own the underlying, why not consider selling covered calls instead? You will need 100 shares per contract to sell covered calls. Can collect additional premium on top of dividends. Do note that if exercised, your shares will be taken away.

    Personally I won't bother holding the stock since more premium can be collected with the same amount you use to buy stock (i.e more positions can be opened)

    Comments (2)
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    • Gabriel Tham
      thanks for the info! Hmm..if covered calls can result in my etf shares taken away then i rather not. I am trying to build an global ETF portfolio and thinking to collect premiums and buy them at lower prices.
      07 Feb 2019
    • Jonathan Chia Guangrong
      You will usually want to sell covered calls at a higher strike price than current. So in a way you gain the premiums from selling the covered calls and the capital gain. Then can continue selling puts to get back the stock at a lower price. Rinse and repeat if so desired. Just highlighting another way to use options
      07 Feb 2019