Forum: money.stackexchange.com
Tags: <retirement><options><income><put-options>
Title: Is selling put options an advisable strategy for a retiree to generate stable income?
Question: Suppose a retiree wants to generate stable income from selling S&P500 (or other stock index) put options. Is this an advisable strategy for a retiree?

Answers:
sents: text: No.
text: In good years, the income seems free.
text: In a down year, particularly a bad one, the investor will be subject to large losses that will prove the strategy a bad one.
text: On the other hand, one often hears of the strategy of selling puts on stock you would like to own.
text: If the stock rises, you keep the premium, if it drops, you own it at a bit of a discount from that starting point.
answer_details: author: money.stackexchange.com/users/187/JTP - Apologise to Monica
score: 11
sents: text: This is a really bad idea.
text: You are asking to be forced to pay for something at a time when you most likely NOT want to buy it.
text: Why?
text: There is no stability (much less any degree of predictability) to give up the right to control when and for how much you would be willing to own the S&P500.
text: Just don't do it.....
text: "generate stable income" and "selling puts" is an oxymoron. ===
text: retired investment advisor
answer_details: author: money.stackexchange.com/users/16419/michael
score: 7
sents: text: I am close to retirement and sell cash secured puts and covered calls on a regular basis.
text: I make 15 % plus per year from the puts.
text: Less risky than buying stocks, which I also do.
text: Riskier than bonds, but several times the income.
text: Example: I owned 4,000 shares of XYZ, which I bought last year at 6.50 and was at 7.70 two months ago.
text: I sold 3,000 shares, sold 10 Dec puts @ 7.50 (1,000 shares) for $.90 per share and sold 10 Dec calls at 10.00 for $.20.
text: Now I had cash from the sale of 3,000 shares ($23,100) plus $900 cash from the sale of the puts, plus $200 cash from the sale of the calls.
text: Price is now at 6.25.
text: Had I held the 4,000 shares, I would be down $5,800 from when it was 7.70.
text: Instead, I am down $1,450 from the held 1,000 shares, down $550 on the put and up $200 on the calls.
text: So down $1,800 instead of down $5,800.
text: I began buying XYZ back at 6.25 today.
answer_details: author: money.stackexchange.com/users/63518/BoscoOakman
score: 2
sents: text: There is only one way to create "stable" income using options: write COVERED calls .
text: This means you must own some stocks which offer an active and liquid option market
text: (FB would be good; T would be useless.)
text: In other words, you need to own some "unstable" stocks, tickers that have sometimes scary volatility, and of course these are not great stocks for a retiree.
text: But, let's assume you own 500 shares of FB, which you bought in June of 2015 for $75.
text: Today, you could have been paid $2,375 for selling five Mar18'16 $105 Calls.
text: Your reasoning is: if I get exercised, I'll be selling my FB shares for $105 andhave total
text: option+shares proceeds of $54,875 and a profit
text: of$37,500.
text: (Of course, you would also be giving up the additional profitwhich attracted the option holder to exercise) if I don't get exercised, I will have made $2,375 and reduced mybasis in my FB shares by that same amount.
text: So, the rule is: ONLY SELL COVERED CALLS
text: AT
text: A PRICE
text: YOU WOULD BE HAPPY TO ACCEPT.
text: If you follow the rule, you'll generate more-or-less "stable" income.
text: Do not venture off this narrow path into the rest of Option Land.
text: There be dragons.
text: You can select strike prices that are far out of the money to minimize the chance of being exercised (and sweeten the deal by collecting an even higher price if the stock flies that high).
text: If you are thinking about doing this, study the subject thoroughly until you know the terminology backwards and forwards.
text: (Don't worry about "the greeks" since market makers manipulate implied volatility so wildly that it overrides everything else.)
answer_details: author: money.stackexchange.com/users/39122/Patrick
score: 1
sents: text: As you move toward retirement, your portfolio is supposed to move toward low risk, stable investments, more bonds, less stocks, etc.
text: Your question implies that you want to increase your income, most likely because your income is not satisfying your desires.
text: First, any idea that you have that risks your savings, just eliminate it.
text: You are not able to replace those savings.
text: The time for those kind of plays has passed.
text: However, you can improve your situation.
text: Do random odd jobs.
text: Find a part time job that you're willing to do for 10 hours a week or something.
text: Keep this money separate from your retirement savings.
text: Research
text: the stock trades you would like to make and use that 'extra' money to play in the market.
text: Set a rule that you do not touch your nest egg for trading.
text: You may find that being retired gives you the time to do the #1 thing that helps investors make good investments -- research.
text: Then when you make your first million doing this, write a book.
text: If you call it Retire -
text: And Then Get Rich , I expect royalties and a dedication.
answer_details: author: money.stackexchange.com/users/47488/Xalorous
score: 1

Summary of the answers:
Study the subject thoroughly. In retirement your portfolio is supposed to move into more low risk options.
You cannot "generate stable income" by "selling puts" and therefore not advisable. If you really want to do this, then study the subject and the terminology thoroughly, which as a retired person, you may have time to do. However, at retirement age, your portfolio should be more low risk and stable investments and less high risk stocks. You should also set a rule not to touch your nest egg for trading.