Risks of monthly options strategy · Invest & Retire Community

Risks of monthly options strategy

Hi all, I just joined the commnunity and I am looking forward to learning and growing

I have a question regarding selling of monthly options strategy.

I would presume we are not really holding to a stock long term because it's an iterative process of stocks being called away and assigned.

I did a hypothetical example on MSFT for the following period between 30mar 2020 to 15nov 21, comparing the returns of the traditional buy and hold strategy vs the monthly options strategy.

Note that it's just sampling of an uptrend period and by no means a comprehensive comparison.

Method:

Puts were sold OTM strike (one price away)

Calls were sold at the strike price of the cost basis.

I may be missing something, but it seems like there're some risks/flaw involved with this method

1. depending on how you are selling your puts and how aggressive you are, you may miss getting into position and if market is in an uptrend, your initial capital will buy less and less of stock.

2. Calls could potentially limit your upside potential and participation in an appreciating market long term.

3. The commissions from the monthly writing of options would eat into your profits vs buy and hold.

Again, i may be missing something and would love to hear your opinions. Thank you!

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